As Canada moves toward stable coin regulation, Scotiabank has argued the move is unlikely to shake domestic markets.
Any framework is really about improving the speed, efficiency and settlement of 24/7 payments, rather than managing systemic risk, economist Derek Holt wrote in last week’s report.
In November, the government committed to passing legislation that would regulate stablecoins backed by the Canadian dollar. This follows in the footsteps of the United States which in recent months passed a law governing stablecoin issuers.
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 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 exploded in the United States, driven by Tether’s roughly $185 billion footprint, Holt said.
Stablecoin issuers store their reserves primarily in short-term Treasuries, repos, and money market funds, along with Bitcoin and gold settles. This combination has drawn attention because a run could force asset liquidations, the report notes.
S&P recently reduced its assessment of Tether’s ability to maintain its peg at the lower end of its scale, while Circle’s peg appears more stable due to its tighter Treasury focus. Without access to the Federal Reserve’s safety nets, issuers would have limited defenses in a crisis, Holt wrote.
The economist nevertheless emphasizes that this is not a repeat of historical failures in setting interest rates. Stablecoins remain a small part of global finance, even though long-term projections imagine reserves in the billions of dollars that could eventually be of importance to the Treasury market. And while U.S. officials say stablecoins bolster the dollar’s reach, he warned that fiscal slippages or issuer-level imbalances could weaken that support.
For Canada, the bank sees the real win in cross-border payments. Stablecoins could lower costs, reduce liquidity premiums and offer around-the-clock settlement, provided issuers remain strong, he said.
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