Canada Cannot Afford to Miss Out on Stablecoins

Goals

Establish a clear framework for stablecoins in Canada under federal prudential regulation as digital payment instruments – distinct from securities. Integrate stablecoins into our financial and payment systems to increase consumer options, financial competitiveness, and economic resilience for Canada. With this, Canadians will see faster transactions, lower costs, and a Canadian dollar that can compete on global markets. 

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Background and Motivation

In many ways, blockchain technology is a made-in-Canada innovation. Ethereum, the world’s second-largest blockchain network, was co-founded in Canada by a Canadian. Today it is the largest Canadian business venture ever built, worth over $300 billion CAD (about 1.5 times the size of RBC, Canada’s largest company). 

A decade ago, facing uncertainty and skepticism from Canada’s regulators and business establishment, most of Ethereum’s founders left Canada and set up shop in the U.S., Singapore, Germany, Switzerland.

Despite Canada’s leadership in developing blockchain infrastructure, we are falling behind in applying these innovations to our financial system. Canada should be at the forefront of blockchain-based financial solutions, leveraging its homegrown expertise rather than ceding leadership to foreign players. We can start with stablecoins.

A stablecoin is a type of digital currency designed to maintain a stable value by being backed by traditional currency, such as the Canadian dollar. Think of it as digital cash that is always worth the same amount because it is fully backed by real money in a bank. Unlike other cryptocurrencies, which can fluctuate wildly in price, stablecoins combine the security and utility of traditional money with the speed and efficiency of digital transactions.

Stablecoins offer two major advantages over Canada’s current financial system: they eliminate middlemen and enable programmable financial transactions.

First, stablecoins allow Canadians to hold and transfer money directly, without relying on banks or payment processors. This simplifies transactions, offering lower fees and less delays, especially for international payment. One in five Canadians remit money abroad today, but pay hefty fees of 6-12%¹. Imagine if you could send money to family abroad or conduct business with foreign intermediaries instantly and cheaply, without clunky wire transfers or slow credit card payments.

Second, stablecoins introduce programmability through smart contracts. This allows you to automate financial operations currently handled by banks and intermediaries. Loans, escrow services, regulatory compliance checks, and secure asset storage can all be managed transparently and cost-effectively through programmable digital contracts. This significantly streamlines treasury operations, payroll, and cross-border business transactions, lowering complexity and cost.

Stablecoins solve several real-world financial challenges for Canadians:

• High fees and slow transactions – Current banking systems impose delays and fees, particularly on international transactions. Stablecoins offer low-cost, instant global payments².
• Currency conversion costs – Canadian businesses dealing internationally face excessive foreign exchange fees. Stablecoins simplify currency management, reducing reliance on costly foreign exchange services.
• Limited banking access – Canadians are often constrained by banking hours and limited service availability. Stablecoins operate 24/7, ensuring constant financial access.
• Inefficient treasury management – International transactions introduce liquidity challenges for businesses. Stablecoins provide real-time settlement, enhancing financial efficiency.

Beyond efficiency improvements, the relevance of the Canadian dollar is at stake. As stablecoins become more widely adopted in global finance, they are overwhelmingly USD-dominated, reinforcing U.S. economic influence in cross-border transactions. Canada’s economy is built on a strong and trusted currency, and ensuring that a CAD-backed stablecoin exists and thrives is critical to maintaining our role in international trade and money flows. If Canada does not create the regulatory framework and environment that encourages the development of CAD stablecoins, consumers and businesses will default to using USD-pegged alternatives, eroding the relevance of CAD in global markets. 

This shift would not only weaken CAD’s influence in international finance but also subject Canada’s economy to greater exposure and dependence on U.S. monetary policy. Establishing a CAD stablecoin secures our economic sovereignty, reinforcing CAD’s role in global commerce while enabling Canadian firms to transact digitally in their national currency.

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Current Challenges

While other countries have established clear legal definitions and regulatory structures for stablecoins, a lack of federal leadership has led to inconsistent policies across provinces. It’s not just a lack of certainty, some provinces are actively fighting against this technology. The Canadian Securities Administrators (CSA), which represents the provincial securities regulators, has deemed stablecoins to be securities³ (i.e. they should be treated like a stock or bond). 

This is not only an inaccurate designation (other countries have deemed these to be payment infrastructure), but it places a higher regulatory burden on stablecoin operators, actively stifling growth. This also leads to a significant tax burden for users, as stablecoin transactions would be subject to capital gains or income tax. Imagine having to pay tax on the appreciation of the Canadian dollar every time you bought something in cash – it wouldn’t make sense to use it.

The time to act is now. By establishing a strong legal and regulatory foundation for stablecoins, Canada can modernize its financial system, enhance competitiveness, and ensure a future where Canadian businesses and individuals benefit from the efficiency, security, and accessibility of stablecoin technology.

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International Adoption

Many countries have already raced ahead with frameworks that support the adoption of stablecoins:

1. Singapore – The Monetary Authority of Singapore established clear licensing rules for stablecoin issuers, ensuring they maintain 1:1 fiat backing (i.e. backed to the Singapore dollar) and consumer protections. As a result, Singapore has attracted stablecoin innovation while maintaining financial stability.
2. European Union – The EU’s Markets in Crypto-Assets (MiCA) framework classifies stablecoins as digital money, creating a clear legal path for their use in daily commerce. This has provided legal certainty for businesses and consumers.
3. United Kingdom – The U.K. integrated stablecoins into existing financial regulations under its Financial Services and Markets Act, ensuring they are regulated like traditional electronic money.
4. United States – The US has expressed strong support for stablecoins. The GENIUS Act, which offers a pro-growth regulatory framework and ensures 1:1 US-dollar backed reserves, is actively being pushed through to becoming law⁴. 

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What Needs To Be Done

To secure Canada’s leadership in digital finance, we must act quickly:

1. Define Stablecoins in Law – The Federal Minister of Finance must issue an immediate Order in Council to classify stablecoins as digital payment instruments, distinguishing them from securities.
2. Amend the Retail Payment Activities Act (RPAA) – Stablecoins must be recognized under the RPAA, ensuring they are governed by appropriate financial regulations and consumer protection standards.
3. Establish a Single Regulator for Stablecoins – As CAD-denominated stablecoins are an extension of the Canadian dollar, the Bank of Canada should oversee stablecoin issuers. Having a single regulator will also help streamline processes. Their mandate should be two-fold:
   
   1. Support the safety and security of consumer finances – e.g. ensuring issuers meet reserve and redemption requirements; establishing anti-money laundering rules
   2. Ensure Canada is a globally competitive environment for stablecoin adoption – e.g. following similar regulatory models already established in the UK and US will make it easy for existing companies to expand to Canada
4. Enable Stablecoin Integration into New Banking Infrastructure – Stablecoins should be incorporated into Canada’s open banking and real-time rails framework, ensuring seamless interoperability with existing financial services.

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Common Questions

• Would stablecoins destabilize Canada’s financial system? No. Properly regulated stablecoins are backed 1:1 by fiat (i.e. CAD) reserves and improve financial efficiency without affecting traditional banking stability.
• Are stablecoins secure? Yes, under this framework, issuers will be required to undergo regular audits, and comply with stringent security protocols.
• Aren’t cryptocurrencies speculative assets that fluctuate wildly in price? Stablecoins are not crypto assets. They are backed by fiat currency (i.e. the Canadian dollar). By making existing currency a digital asset, countries can benefit from the speed, security, and lower fees of blockchain technology, without the fluctuations in price.
• Will this benefit everyday Canadians? Absolutely. Lower transaction fees, faster payments, and better financial access will help individuals and businesses alike. With regulatory clarity, innovators would feel empowered to develop new and important financial products and services to support consumers and businesses.
• How will stablecoins prevent illicit finance? Stablecoins offer a powerful tool to combat illicit activity under strong regulations. Issuers can (and have) assisted law enforcement, using blockchain analytics to trace and freeze funds tied to crimes like scams and ransomware. Unlike cash systems, which are slow, opaque, and nearly impossible to track efficiently, stablecoins provide transparency and speed that traditional cash can’t rival. 

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Conclusion

Stablecoins are the next step in Canada’s financial evolution. If we act now, we can position ourselves as a global leader in digital payments, attract investment, and enhance economic sovereignty. Our government must move quickly to define and regulate stablecoins, ensuring they serve Canadian businesses and consumers in a safe and efficient manner. Other countries are doing the same; Canada cannot afford to be left behind.

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