As Canada turns to stablecoin regulation, Scotiabank argued that the move is unlikely to shake domestic markets.
Any framework is really about upgrading payment speed, efficiency and 24/7 settlement, rather than managing systemic risk, economist Derek Holt wrote in last week’s report.
In November, the government committed itself to legislation that will regulate stablecoins backed by the Canadian dollar. It follows in the footsteps of the U.S. which passed a law to govern stablecoin issuers in recent months.
Stablecoins are cryptocurrencies whose value is tied to another asset, such as fiat currency or gold. They play a major role in cryptocurrency markets, providing a payment infrastructure, and are also used to transfer money internationally. Tether’s USDT is the largest stablecoin, followed by USDC, issued by Circle Internet (CRCL).
These cryptocurrencies have surged in the U.S., led by Tether’s roughly US$185 billion footprint, Holt said.
Stablecoin issuers park reserves mostly in short-term Treasuries, repo and money-market funds, with bitcoin BTC$85,645.09 and gold inching in. That mix has drawn attention because a run could force asset liquidations, the report noted.
S&P recently cut its assessment of Tether’s ability to hold its peg to the lowest level on its scale, while Circle’s peg looks steadier as a result of its tighter Treasury focus. Without access to the Federal Reserve’s backstops, issuers would have limited defenses in a stress event, Holt wrote.
Still, the economist stressed this isn’t a rerun of historic peg failures. Stablecoins remain a small slice of global finance, even if long-run projections imagine trillion-dollar reserve pools that could eventually matter for the Treasury market. And while U.S. officials say stablecoins bolster the dollar’s reach, he cautioned that fiscal slippage or issuer-level imbalances could make that support fragile.
For Canada, the bank sees the real payoff in cross-border payments. Stablecoins could cut costs, narrow liquidity premiums and offer round-the-clock settlement, provided issuers remain solid, it said.
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