The BOC Highlights The Need Of Law For Stablecoin Regulation
In a note, researchers from a central bank say that regulation is the key to getting the benefits of crypto assets that are tied to fiat currencies even though the Canadian parliament hasn’t even thought about it.
The Bank of Canada put out an analysis of fiat-referenced crypto assets, also called stablecoins, on Dec. 19. Along with a review of how stablecoins are made and distributed and a list of their possible risks and benefits, the note also said that the authors wanted the crypto asset to be regulated more.
Between the beginning of 2020 and the middle of 2022, the global market for crypto assets backed by fiat money grew 30 times, reaching $161 billion in U.S. dollars. The note says that they are mostly used on crypto-trading platforms, but they could be used for a lot of other things, especially when combined with smart contracts.
“These cryptoassets could bring efficiencies and greater competition to payment services, especially in a more digitalized economy. However, without safeguards, they could pose significant risks to the stability of the financial system,” the authors wrote.
Did you know that #PierrePoilievre & the Conservative party voted to grow the crypto currency sector, the one that lost 50% of its value? Watch how fast Skippy votes so not to get noticed. 🤓 pic.twitter.com/USu6NS4BRo
The note mostly talks about the risk of concentration. The concentration risk applies to both stablecoins and people who own them:
“Currently the top three fiat-referenced cryptoassets have 90% of the total fiat-referenced cryptoasset market; […] Similarly, the top 1% of investors hold approximately 90% or more of the total supply of the major fiat-referenced cryptoassets.”
Because of this, changes to those coins and their owners could have a big effect on the economy as a whole.
Even though international bodies that set standards have given advice on how to regulate cryptoassets that are tied to fiat currencies, “most existing regulatory regimes, in Canada and abroad, are not presently fit for purpose,” the note said. It gave a brief description of the frameworks and interim measures that are being made right now, and then said:
“A timely and comprehensive regulatory approach in Canada will ensure that fiat-referenced cryptoassets can deliver potential benefits without posing unnecessary risks.”
The note might have been most interesting in light of the way cryptocurrency is regulated in Canada right now. In February, the Canadian House of Commons got “Encouraging the Growth of the Cryptoasset Sector Act,” or Bill C-249. The crypto community in Canada was mostly in favor of the bill, but it split the political community, and after its second reading, it was pretty much forgotten.
