The Bank of Canada is sounding the alarm over fears the country will fall behind in modernizing its payment system. Officials say Canada needs to quickly implement a regulatory framework for stablecoins, digital tokens linked to traditional money like the Canadian dollar.
Ron Morrow, the central bank’s executive director of payments supervision and oversight, said at a conference in Ottawa this week that Canada may have to look at regulating stablecoins nationally. He said Momentum is building not just across the United States but worldwide. And that if Canada were on track and weren’t taking action, it might not matter.
The appeal comes as digital payments grow worldwide and stablecoins are becoming inexpensive, swift, and efficient for daily transactions. Morrow emphasized that for stablecoins to work as actual money, they had better be just as safe and stable as the balance in a bank account.
Canada urged to lead the way
It’s now up to Canadian regulators to follow suit, he and other advocates say. The Office of the Superintendent of Financial Institutions (OSFI ) also subsequently recognized that a regulatory framework for stablecoins that includes licensing, redemption rights, and reserves from issuers is in the works. OSFI also announced that it was prepared to experiment with digital assets as long as they can be easily tracked.
Partisan watchers fear that a patchwork, with provinces adopting different rules, would stunt innovation. Now there are calls for federal and provincial regulators to collaborate on a single set of standards.
Stablecoins are having a moment, courtesy of something within the industry known as “stablecoin summer.” Cross-border transfers, e-commerce, and instant peer-to-peer payments are some of the causes for their surge in popularity. Users benefit from lower costs and faster speeds than traditional banking rails.
However, the Bank of Canada has also raised a warning. If not unlimited, the cost of a stablecoin could be attacked by liquidity-induced crises, credit risks, and ruleless poor governance. Morrow warned that Canadians must be well protected lest stablecoins succumb to the pressure and implode, through the experience of other failed crypto projects across the globe.
Bank redirects digital currency strategy toward stablecoin regulation
The fight over stablecoins is coming as Canada has internally reconsidered its decision to introduce its central bank digital currency (CBDC). The Bank of Canada researched CBDC with the Massachusetts Institute of Technology (MIT) in 2022. But the bank said in September 2024 that it was taking a break from its work on the project, citing other priorities, such as an effort to upgrade the country’s real-time payments system.
According to surveys, while 42% of Canadians have a positive attitude toward CBDCs, one in five said they either disliked or hated the possibility. Many people in crypto are skeptical about CBDCs because they fear governments can and will deploy them to surveil their citizens and eliminate financial freedom.
The central bank has set sights on other private digital assets, such as stablecoins. Advocates say doing so could bring many benefits of digital money without provoking the same public outrage.
Moderate Canada is scheduled to release a draft of the stablecoin law in months. That would encompass OSFI, federal politicians, and provincial regulators. If it becomes the industry standard, compliance would guide issuers, create rules protecting consumers, and explain how reserves must be held.
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