In promoting stablecoin regulation and adoption, Build Canada is repeating patterns of hype similar to Facebook’s ill-fated Libra project.
Libra, a private stablecoin later renamed Diem, had an ambitious vision that collided with real-world realities: a fragmented and highly regulated global payments landscape, subordination to fiat currency policies, competing goals, and grand ambitions to solve problems that already had viable solutions.
Libra presumed too much and was out of touch. The project attracted significant regulatory scrutiny, causing internal contradictions, and was ultimately shuttered after defections and before it reached any market.
Som Seif’s memo on Build Canada promoting a Canadian-dollar-backed stablecoin echoes Libra’s ill-fated promises. This distracts from the real shortcoming of our regulatory system: its rigidity preventing early detection and adaptation to financial innovations
Seif says that stablecoins would facilitate instantaneous and inexpensive international money transfers, highlighting that “One in five Canadians remit money abroad today, but pay hefty fees of 6-12%.” However, recipients abroad prefer remittances in their local currencies or US dollars, meaning Canadian-dollar stablecoins could introduce additional conversion costs. Furthermore, recipient countries must be “stablecoin-ready,” which many are not. Major remittance-receiving nations like India and China either have no crypto regulations, impose additional taxes, or significantly restrict crypto/stablecoin transactions.
Moreover, the remittance market is already effectively served by existing providers competing on cost and rapidly advancing their tech. Western Union, a global leader, continues to grow its digital and consumer segments. Its primary challenges come from geopolitics, economic downturns, and competition from non-stablecoin players (like Wise).
Stablecoin acceptance could certainly evolve, and incumbents can be disrupted, but the global market is too fragmented and operates under a patchwork of national regulations making any transition unlikely in the short term, and only gradual in the long run. This is why the most dominant use case for stablecoins today is as a store of value for crypto.
Seif also emphasizes stablecoins’ programmability through smart contracts and outlines several potential benefits. But smart contracts rely on blockchain technology, which has no mainstream adoption within financial systems. Financial institutions have experimented with blockchain, but the enterprise use-cases remain elusive. It is unlikely that blockchain technology becomes integral to our payment infrastructure, limiting smart contracts to narrow circles of users.
Seif then argues for the sovereignty of the Canadian dollar, echoing Libra’s alarmist stance regarding China’s currency influence, suggesting the Canadian dollar could lose relevance to the USD without a Canadian-dollar-backed stablecoin. Assertions such as “Establishing a CAD stablecoin secures our economic sovereignty” are problematic because currency relevance fundamentally depends on monetary policy, investor confidence, and economic fundamentals such as trade volumes and balances. Positioning stablecoins as a panacea brushes over these complexities.
The Libra saga began in 2019. Six years on we seem to be stuck using the same thinking patterns trying to mainstream blockchain and crypto, the technologies that stablecoins are built on. As it is, the case for stablecoins has yet to be convincingly established. But that doesn’t mean we shouldn’t try to establish one…
How about we move away from championing this specific, uproven technology, and instead encourage Canada’s regulators to revolutionize how they relate to innovation? We should push our regulators to better identify emerging financial technologies, to engage stakeholders broadly and swiftly, and to design regulations that facilitate experimentation and discovery. Perhaps this would set the stage for compelling stabelecoin use cases.
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