Canadian Stablecoins Continue Amid Increasing Regulatory Calls – MoneySense

There are increasing calls to simplify the rules to make it easier to launch stablecoins pegged to Canadian dollars and stem the potential outflow of capital from the country. “From a sovereignty perspective, Canadians should at least want a Canadian stablecoin,” said Didier Lavallée, CEO of digital asset company Tetra Digital Group.

The dominance of US stablecoins is putting pressure on Canada

Concerns have grown since the United States passed legislation last summer that set clear rules for the sector, further entrenching the U.S. dollar’s dominance in the space that promotes faster and cheaper money transfers.

Because stablecoins are intended to mirror the value of conventional currencies, issuers must buy hard assets like dollars to back them. No stablecoins pegged to Canadian dollars means more money flowing out of Canada and into US dollars and US government bonds.

“Canada must also weigh the benefits of federal stablecoin regulation,” Ron Morrow, executive director of payments at the Bank of Canada, said in a speech in September.

His former colleague Timothy Lane, who resigned as deputy governor in 2022, was somewhat blunter in an October report for the Global Risk Institute. “Stablecoins are becoming too important to ignore,” says Lane. “There is now an increasing sense of urgency about establishing a coherent framework for regulating stablecoins in Canada.”

Peter Routledge, head of Canada’s banking regulator, has also said he is concerned about the rapidly changing space and will keep a close eye on the Nov. 4 budget, while John Ruffolo, managing partner at Maverix Private Equity, has been among the most vocal about the need to respond.

One of Ruffolo’s biggest concerns is that some people and companies could leave money in the stablecoin sphere, rather than in bank deposits. That’s already how stablecoins first gained popularity: as a stable place for crypto traders to park money between bets, without having to exchange it back into conventional currency.

Since banks use deposits as an anchor for lending, he warns that even if 5% of Canadian bank deposits, or about $135 billion, were to go into U.S. stablecoins, it would have a domino effect of erasing as much as $675 billion in domestic lending capacity.

The private sector is leading the Canadian stablecoin push

The increasing calls have raised expectations of some move from the federal government, but given how slowly past promises like open banking have actually been rolled out, some companies like Tetra aren’t waiting for change before moving forward with their own stablecoins. “Financial innovation takes quite a long time in this country,” says Lavallée.

Because Tetra is already registered as a Canadian trust company, Lavallée sees an easier path than others to gaining regulatory approval through the current system. Tetra’s efforts have also received a boost from major backers such as Wealthsimple, National Bank, ATB Financial and Shopify, which have secured $10 million in funding to ready a stablecoin for release, due early next year.

Elsewhere, Transactix Financial Inc. announced in May announced plans to move forward with its own token, and last week Loon Technology Inc. announced that it had raised $3 million to get its own Canadian dollar stablecoin going.

The companies are all working to navigate an existing system that some, at least, aren’t too concerned about. “I think it’s working well,” said Grant Vingoe, head of the Ontario Securities Commission, who has played a leading role in stablecoin oversight.

The inclusion and impact of stablecoins are still unclear

While the U.S. has used legislation, the Canadian approach of working with each issuer is more adaptable in the rapidly changing crypto space, he said. “There is a lot to be said for a more tailored, direct approach to engagement, where you express your concerns and requirements… rather than trying to codify them once and for all.”

So far, this approach has resulted in a single issuer, Circle, receiving the blessing of regulators for its US dollar-pegged stablecoin.

But Vingoe is also still skeptical about how much use there will actually be of stablecoins. “I think it’s still an open question whether stablecoins will be widely used as a payment mechanism.” Improvements to the existing payment system could ultimately be better or more efficient, he said.

Some have suggested that central banks may issue their own digital currencies, although the Bank of Canada has suspended work on such efforts.