Canada's US debt rise and stablecoins

What happened

"Canada holding US government debt" was the most searched topic on Google in Canada this weekend. The trigger was a Globe and Mail report that Canadian accounts are on track to become a top-three holder of US Treasury securities, overtaking China. According to the paper, holdings in Canada-domiciled accounts have risen more than 300% since 2021, from about US$106 billion.

The latest official figures point the same way. US Treasury data for August 2026 list Canada at US$464.6 billion, up from US$426.3 billion in July, while mainland China fell to US$590.7 billion from US$618.0 billion. Japan (US$1,068.3 billion) and the United Kingdom (US$1,009.5 billion) remain the two largest foreign holders.

Why Canada's holdings are rising

The Globe and Mail cites a late-August report by Bank of Montreal economist Doug Porter, who projected that Canada would pass Belgium and China within 18 months, leaving only Japan and Britain ahead. Scotiabank's Derek Holt pointed to the gap between US and Canadian bond yields as a more plausible driver, with the Canadian 10-year yield about 1.25 percentage points below the US equivalent.

There is also a data caveat. The figures count Treasuries held in Canadian accounts, whoever the owner is. Bloomberg reported on 15 October that some investors suspect China may be buying through other channels, a claim that has not been confirmed.

Background: who funds the US government

A Federal Reserve Bank of San Francisco Economic Letter published on 28 September puts the shift in context. The share of US Treasury debt held by foreigners fell from a peak above 50% around 2008 to roughly 30% in early 2026, and China's holdings had dropped by more than half from their late-2013 peak by mid-2026.

A new type of buyer has appeared at the same time. The authors find that Tether and USD Coin, which together make up more than 80% of the stablecoin market, increased their Treasury holdings more than tenfold over five years. That rise of about US$200 billion offset more than 40% of China's decline. Since 2023, stablecoin issuers have added more short-term Treasuries than Japan.

What is a stablecoin, and why it holds Treasuries

For anyone asking what is a stablecoin: it is a digital token designed to track a currency such as the US dollar. To back tokens like USDC and USDT, issuers hold reserves that, according to the FRBSF letter, include Treasury bills, repurchase agreements, cash and bank deposits. As more dollar stablecoins circulate, demand for short-term US government debt grows with them.

Why it matters for payments

The FRBSF authors note that future growth depends on stablecoin regulation worldwide and on competing products, including bank technologies for cross-border payments. In other words, the same tokens that now matter in the Treasury market are competing for a role in international money transfer, where speed, cost and the exchange rate decide which option people choose.

What to watch next

The next monthly Treasury release will show whether Canada keeps closing the gap with China. The FRBSF letter estimates that stablecoin demand for short-term Treasuries could nearly double to about US$400 billion by the end of 2030 if recent trends continue, but stresses that this is a simple extrapolation with substantial uncertainty, and small relative to US financing needs.

What it means for ODIX Pay users

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