Wide adoption of stablecoins could cause problems for Canadian banks

For Canadian banks, stablecoins could be, well, destabilizing. These value of these cryptocurrency assets is tied to the value of a traditional currency, which makes them more practical to use than volatile cryptocurrencies like Bitcoin. This year, Canadian e-commerce giant Shopify began accepting a stablecoin called USDC, but stablecoins are in a regulatory grey area in Canada, and our banking system is not prepared for their widespread adoption. Stablecoins could compete with bank deposits for deposits, says Katrin Tinn, a Professor of Finance at McGill Desautels. But while banks lend out their deposits, which drives economic growth, stablecoin issuers tend to hold low-risk assets like US treasuries. At a large enough scale, this could affect economic growth. “There will potentially be a lot of assets locked up, rather than being lent out in the real economy,” says Tinn.