Canada’s payments infrastructure is already undergoing a renovation that will enhance the efficiency of the financial system, but to take advantage of the potential gains that could materialize by incorporating stablecoins, these vehicles need to be regulated much like the traditional payments system, suggests a new report from the C.D. Howe Institute.
The Toronto-based think tank issued a paper, which calls for sound regulation of stablecoins — typically cryptoassets that are pegged to the value of other assets, such as a fiat currency — to ensure that their benefits can be captured in Canada.
In theory, stablecoins could be used to enable faster, cheaper payments transactions that “would be a boon to both domestic and cross-border economic activity,” the report said.
However, that payoff won’t happen unless stablecoins are adequately regulated, it argued.
“In the absence of proper regulation, it is just too tempting for some stablecoin issuers to underinvest in supporting infrastructure and look for ways to enhance their profits in the short-run by backing their stablecoins with assets that are not sufficiently safe or liquid to be able to hold their value in good times and bad,” it said.
So, if they aren’t properly regulated, it’s unlikely that prospective users will have enough confidence in stablecoins to use them for payments, it added.
To that end, the paper said that stablecoins that are being used for payments need to face the same level of rules and oversight as traditional payment activities.
At the same time, the paper argued that the existing regulatory framework for payment providers and financial institutions should be used to develop a regime for stablecoins.
Specifically, it recommends the ad hoc group of regulators, known as the heads of regulatory agencies — including representatives from the Bank of Canada, the Department of Finance, the Office of the Superintendent of Financial Institutions (OSFI) and the big four securities regulators (Alberta, British Columbia, Ontario, and Québec) — as the best group to take on the challenge.
“Privately issued stablecoins based on new blockchain technology offer the promise of major gains in the processing of payments, especially for those that cross national borders,” it said.
“We need to move quickly in developing and implementing a domestic regulatory framework for these transactions if we wish to set the stage for a flourishing crypto-based payment system to emerge in Canada, if the public wishes to use it, and also position us to punch above our weight in influencing the development of the oversight framework that will ultimately govern cross-border transactions,” it concluded.