Canada Faces Risks from Unregulated US Stablecoins: Urgent Regulatory Action Needed in 2025
- Why Is Canada Rushing to Regulate Stablecoins?
- How Do Unregulated US Stablecoins Threaten Canada’s Economy?
- What Are the Systemic Risks?
- Who’s Calling for Change?
- What’s the Proposed Solution?
- FAQs: Canada’s Stablecoin Regulation Debate
Canada is accelerating its efforts to regulate stablecoins as the federal budget announcement on November 4 looms. Experts warn that without swift action, Canadian capital could flood into unregulated US stablecoins, destabilizing domestic financial systems. This article explores the risks, regulatory gaps, and potential solutions, backed by insights from industry leaders and data from CoinMarketCap and TradingView. ---
Why Is Canada Rushing to Regulate Stablecoins?
Canada is scrambling to draft stablecoin regulations ahead of Finance Minister François-Philippe Champagne’s federal budget release on November 4. John Ruffolo, founder of Maverix Private Equity and VP of the Council of Canadian Innovators, argues that delays could trigger capital flight to US dollar-pegged stablecoins. "If we don’t act, Canadians will park their money in US-based stablecoins for cross-border transfers," he warns. The stakes? A potential decline in Canada’s bond market and weakened control over monetary policy by the Bank of Canada.
How Do Unregulated US Stablecoins Threaten Canada’s Economy?
Every transaction in US stablecoins indirectly funds American debt, enriches US institutions, and exports Canadian financial data southward, Ruffolo explains. The GENIUS Act exacerbates this by mandating 1:1 Treasury backing for new stablecoins, forcing global entities to buy US bonds. Mirza Shaheryar Baig, a forex strategist at Desjardins, notes that 99% of stablecoin value is USD-denominated, creating "a dependency that could strangle Canada’s financial autonomy."
What Are the Systemic Risks?
The Bank of Canada highlights daily stablecoin transactions hitting $2.7 billion, with annual volumes nearing $1 trillion—yet these operate largely outside traditional oversight. Risks include:
- Liquidity gaps: Consumers lack protections akin to traditional banking.
- Currency volatility: CAD-pegged stablecoins remain niche compared to USD giants like USDT and USDC.
- Regulatory arbitrage: US and EU frameworks are outpacing Canada’s, pressuring adoption of foreign systems.
Who’s Calling for Change?
Carolyn Wilkins, former Bank of Canada Deputy Governor, insists on "a legal framework to modernize CAD payments." Meanwhile, RON Morrow critiques Canada’s lagging stablecoin rules, citing warnings from the Office of the Superintendent of Financial Institutions. Even the Bank for International Settlements (BIS) cautions against unregulated stablecoins’ misuse.
What’s the Proposed Solution?
The Bank of Canada urges federal-provincial collaboration to create a national regulatory policy. Ideas include:
- Tethering stablecoins to fiat currency laws to reduce volatility.
- Federal anti-money laundering (AML) upgrades to cover crypto assets.
- Provincial securities law adjustments for stablecoin oversight.
FAQs: Canada’s Stablecoin Regulation Debate
Why is Canada prioritizing stablecoin regulation now?
With the November 4 budget deadline nearing, officials aim to prevent capital outflows to US stablecoins and protect monetary sovereignty.
How do US stablecoins impact Canada’s debt market?
Their dominance diverts investment from Canadian bonds, potentially raising domestic interest rates.
What’s the GENIUS Act’s role?
It mandates Treasury-backed stablecoins, amplifying global demand for US debt—a structural advantage Canada lacks.
