Stablecoins Need to Be Adequately Regulated – Canadian Central Bank
The Canadian Central Bank, while listing the likely risks and advantages of distributing stablecoins, emphasised the need to adequately regulate the creation and distribution processes of stablecoins and other crypto assets at large. The report also stated that the stablecoin market, which has increased drastically and has reached $161 billion, has a lot of use cases yet to be explored.
Without Checks, Stablecoins Could Threaten Financial Stability – The Canadian Central Bank.
In the analytic report that it published, the Canadian Central Bank acknowledged that the market for stablecoins (fiat-referenced crypto assets) has skyrocketed to about $161 billion, which is really impressive and has other use cases and potentials that are yet to be explored.
According to the note, stablecoins, when they enjoy much better acceptance for the payment of goods and services between family units and business entities, will pose a challenge to other means of payment and scale the payment system generally.
However, that could only happen if it is adequately regulated by authorities. According to the paper, if otherwise, it could threaten financial stability in a variety of ways, ranging from run risks to contagion risks to concentration risks to consumer and investor protection risks and others.
Also, the adoption of the assets on a much larger scale will put the Canadian financial sector at risk of experiencing some structural changes in the sense that funds will be diverted to wholesale deposits as opposed to stable retail deposits, a development that will most likely increase lending costs.
Current Regulatory Approaches Are Not Enough
The note, after examining the various regulatory approaches of authorities globally, went on to conclude that these approaches need careful re-evaluation. It stated that, especially in Canada, these regulatory regimes are currently not fit for the intended purpose.
According to the note, the reason is that the regimes were not designed to cater to the exclusive features of stablecoins and the various range of activities that are necessary for creating, distributing, and utilising them.
Concluding, the report noted that the possible advantages of the use of stablecoins are numerous and that to avoid the turmoil they could come with as well, regulatory plans both domestic and international that are already underway needed to be polished to ensure that Canada enjoys the benefits of fiat-referenced crypto-assets without the unnecessary risks.
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