According to research, stablecoins and CBDCs may coexist in Canada

  • CBDCs and stablecoins have recently received a lot of attention. Regulators all around the globe have been considering the benefits and drawbacks of digital currencies and their introduction in their countries
  • Mark Zelmer, the institute’s Senior Executive, and Jeremy Kronick, the institute’s Director of Research, issued a paper on the future of stablecoins and CBDCs, giving a fresh narrative to a Canadian-dollar-linked stablecoin
  • Stablecoin holders might exchange their crypto stablecoins into Canadian dollars issued by the Bank, just as individuals who hold conventional bank accounts

CBDCs and stablecoins have recently received a lot of attention. Regulators all around the globe have been considering the benefits and drawbacks of digital currencies and their introduction in their countries. The C.D. Howe Institute in Canada has released a new paper that looks at this from a different angle, relating stablecoins to CBDCs. Two Sides of the Same Coin, why Stablecoins and a CBDC Have a Future Together, according to the research.

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Mark Zelmer, the institute’s Senior Executive, and Jeremy Kronick, the institute’s Director of Research, issued a paper on the future of stablecoins and CBDCs, giving a fresh narrative to a Canadian-dollar-linked stablecoin. Stablecoins, unlike other forms of cryptocurrencies, are linked to fiat currency, such as the Canadian dollar. It will be critical to keeping the Canadian dollar as the primary unit of account for financial transactions within Canada in order to get the most out of stablecoins while reducing risks.

Maintaining full and unconditional legal convertibility between these assets and Bank of Canada-issued Canadian dollars, on the other hand, would be important. According to the report’s authors,

By making stablecoins convertible into currency issued by the Bank of Canada and ensuring that stablecoins are effectively designed and controlled from a business conduct, competitive, operational, privacy, and prudential standpoint, Canadian-dollar-linked stablecoins might become appealing to Canadians. This is how Canada may benefit from privately issued cryptocurrencies on a microeconomic level. 

Even without endangering Canada’s present monetary sovereignty’s considerable macroeconomic benefits. Stablecoin holders might exchange their crypto stablecoins into Canadian dollars issued by the Bank, just as individuals who hold conventional bank accounts.

Furthermore, the token should be issued in token form, using decentralized technology for transaction settlement. It will allow Canadians to keep the majority of the advantages of paper money. Our preference is for an indirect CBDC, which allows funds to move via payment providers’ balance sheets, simulating cash/banknotes on the Bank of Canada’s balance sheet today. 

The use of the aforementioned recommendations might encourage commercial companies to launch Canadian-dollar-linked stablecoins. This intends to make it possible to convert digitally to cash instead of using real banknotes.

However, there are a few requirements that must be met for this maneuver to be successful, Canadians are more likely to embrace those stablecoins if governments support innovation in the payments realm so that Canadians may profit from continued developments in payments systems and crypto-technology while keeping inflation low. Both characteristics, whether regulated or uncontrolled, have received widespread acceptance. 

For example, Lael Brainard of the US Federal Reserve has expressed her support for the CBDC’s potential benefits. For the latter, VersaBank, a Canadian bank, produced a stablecoin called VCAD that is 1:1 tied to the Canadian currency. It ultimately boils down to a matter of decision. Andrew Bailey, the governor of the Bank of England, favors CBDCs to stablecoins. Nonetheless, it would be fascinating to investigate whether, as noted above, adopting a dollar-linked stablecoin may provide the best of both worlds.

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