Regulators Push for Global Stablecoin Standards, Canada Steps Up

The Bank of Canada has emphasized the importance of federal regulation for stablecoins, urging policymakers to consider a unified approach akin to that of other advanced economies. Ron Morrow, the executive director of payments, supervision and oversight at the Bank of Canada, stressed the growing adoption of stablecoins—digital assets pegged to fiat currencies such as the U.S. dollar—as a solution to the inefficiencies in cross-border payments. These stablecoins, less volatile than traditional cryptocurrencies like Bitcoin, are increasingly being used to facilitate faster and cheaper international transactions. Morrow highlighted the necessity of balancing innovation with safety, noting that while cross-border payment systems need to be modernized, they must also remain secure and transparent.

The Bank of Canada has long been involved in global efforts to address the regulatory and financial stability challenges posed by stablecoins and other digital currencies. Through its collaboration with international bodies such as the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Bank for International Settlements (BIS), the Bank has contributed to reports and frameworks that guide the regulation of global stablecoin arrangements. Notably, in October 2021, the FSB published a progress report on the implementation of stablecoin regulations in 48 jurisdictions. The Bank of Canada’s participation in such efforts underscores its commitment to fostering a coherent and globally aligned regulatory environment.

In Canada, the regulation of digital assets is shared between federal and provincial authorities, with the federal government overseeing systemically important financial market infrastructures. The Bank of Canada has called for a more agile and collaborative approach to regulation, particularly in light of criticisms that Canada’s payment infrastructure is outdated compared to countries like the United Kingdom and Australia. The current system is dominated by the country’s five largest banks, which critics say has resulted in high fees and limited competition. Morrow acknowledged these challenges but noted recent momentum in both the public and private sectors toward modernizing the payment ecosystem.

The federal government is currently working on a regulatory framework for stablecoins, which will be implemented by the Office of the Superintendent of Financial Institutions (OSFI). Peter Routledge, the Superintendent of Financial Institutions, indicated that the framework, once finalized, will be tailored to address the unique risks and opportunities associated with stablecoins while ensuring alignment with Canada’s broader financial oversight system. The U.S. recently passed the GENIUS Act, which establishes a federal regulatory regime for payment stablecoins, including reserve requirements, licensing pathways, and anti-money laundering (AML) compliance standards. Canada’s approach is being closely watched, with industry stakeholders eager to align with international best practices while preserving domestic financial stability.

The Bank of Canada has also engaged in research collaborations to explore the potential of Central Bank Digital Currencies (CBDCs). A notable initiative involves a 12-month research project with the Massachusetts Institute of Technology (MIT), focusing on how advanced technologies might influence the design and functionality of a potential Canadian CBDC. The project is part of the Bank’s broader strategy to evaluate the implications of digital currencies for financial systems and monetary policy. No decision has yet been made on whether Canada will issue a CBDC, but the research aims to provide valuable insights into the technical and regulatory considerations involved. The outcomes of this collaboration will be shared with the public at the conclusion of the project period.