The Bank of Canada was born as a sovereignty flex. Before 1935, the country didn’t actually control its own money supply — private banks did, and global financial centres in London and New York set the tone. After the Great Depression exposed the risks of this approach, Canada built a central bank, made it public in 1938 and took the levers of monetary power: issuing currency and stabilizing markets. It was a nation-building move — and an early example of the importance of owning and governing essential economic infrastructure.
Now, Canada, and the Bank, are facing a new sovereignty threat: stablecoins that behave like traditional money but flow on privately-owned and foreign-controlled digital infrastructure. If the last century was about establishing monetary power outside of private banks, this one is about preventing our digital money from being intermediated (and eventually steered) by U.S. tech firms.
Things are moving fast. This fall, the federal government was forced to address a legislative void created by the Trump administration’s crypto blitz, dusting off work on stablecoins that had been quietly shelved. That “seriousness” came in the form of the Stablecoin Act, tabled last month as part of the budget implementation bill. The Act is supposed to provide long-needed regulatory clarity to Canadian companies like Tetra Trust, Transactix, Stablecorp and Loon, who are all vying to tokenize our loonies on the blockchain.
Ottawa’s move came at the urging of innovators who saw an opportunity for the country to chart its own course in the future of money instead of inheriting one from Washington or Silicon Valley.
But a close read of the Act suggests it will do little to defend Canada’s monetary sovereignty. Instead, we’re basically giving foreign multinationals free rein to de-Canadianize our dollars.
Loosely modeled on the GENIUS Act, a Trump-era law that has been a boon to U.S. stablecoin issuers, Canada’s proposed legislation focuses on protecting consumers and preventing bank runs from destabilizing the financial system. Consumers are protected by being given redemption rights, which allow them to turn stablecoins back into cash at any time. The Stablecoin Act’s reserve requirements, combined with some other regulatory scaffolding, minimize the risk of a stablecoin issuer going insolvent if too many redemption requests come at once.
That’s all smart policy design, but it’s incomplete from a monetary sovereignty standpoint. As currently drafted, the Stablecoin Act doesn’t stop Canadians from switching to stablecoins denominated in U.S. dollars, which could reduce the relevance of the loonie.
The Bank of Canada’s ability to administer monetary policy through the overnight rate depends on the Canadian dollar being supremely relevant — to everything from receiving our paycheques to paying our bills. This ability is crucial in an economic crisis.
If Canadians switch away from using Canadian dollars and start using USD-denominated stablecoins, the Bank of Canada’s ability to influence the economy disappears. It would mean that influence could wind up in the hands of the U.S. Federal Reserve, whose own monetary policy would govern what is in your digital wallet.
What’s more, the reserve assets backing the stablecoins issued by Tether and Circle — the biggest issuers in the world — are held by foreign financial institutions, outside the visibility and reach of Canadian regulators. Canada’s Stablecoin Act requires reserve assets to be held with a “qualified custodian,” but the legislation is silent about who can act as a qualified custodian and where, geographically, reserve assets must be held.
There’s a real irony here: the urgency created by Trump’s GENIUS Act has shaped the push for stablecoin legislation, but the proposal that’s emerged fails to centre Canada’s sovereign interests.
If protecting our monetary sovereignty was a priority, the Stablecoin Act would look a little different — and maybe at least one of the federal budget’s 57 references to "sovereignty" would have been in its section on stablecoin regulation. And Coinbase, an American crypto company that is incentivizing Canadians to buy USD-backed stablecoins, wouldn’t be so approving of Canada’s legislative approach.
A Stablecoin Act that future-proofed our monetary sovereignty would have capped how many foreign stablecoins Canadian consumers and businesses can hold. It’s not a wild idea. The Bank of England is currently proposing capping the amount of stablecoins U.K. citizens can hold — a bulwark against people clearing out their bank accounts in favour of stablecoins, which would dry up bank funding.
Canada’s Act would have also done more to offer targeted incentives for domestic issuers and fintechs, recognizing that Canadian consumers will only choose local options if they can functionally compete with U.S. products. For example, our Act could have also given the issuers of CAD-denominated stablecoins the ability to pay yield or access our payment systems to make stablecoins more interoperable with plain, old money.
Right now, Coinbase is offering a 4.5 per cent yield on USDC to Canadian consumers — a push to get USD-denominated stablecoins into domestic digital wallets. That’s way more interest than Canadians earn on their deposits. If Canadian issuers and fintechs can’t find a way to keep Canadians on the Canadian dollar, that’s a real risk to our monetary sovereignty — currently being exacerbated by U.S.-based crypto firms.
Banning foreign-issued stablecoins is not the answer, as one of the use-cases where stablecoins show a lot of promise is in cross-border payments, where Canadian dollars just aren’t in high demand. Canadians must be allowed to use foreign stablecoins, but they need to be subject to the right legislative and regulatory requirements.
For now, the risk of USD-backed stablecoins overthrowing Canada’s monetary regime is low.
But low risk now isn’t low risk forever. Good legislation equips regulators to manage not just the risks of today, but also the risks of tomorrow.
JP Morgan, among the biggest banks in the world, is already experimenting with stablecoins and deposit tokens, while stablecoin issuer Circle is vying to turn USDC into a global settlement asset with the help of companies like Coinbase. Here at home, Shopify has been allowing its merchants to accept payment in USDC for almost a year.
It’s not only digital money that is at risk of being Americanized, it’s also the rails that digital money moves on. Circle and payment company Stripe are both building their own blockchains, the infrastructure that records stablecoin transactions. In a future where foreign companies control both the digital dollars Canadians use and the networks that power them, the relative influence of the U.S. monetary system will be undeniably stronger, and Canada’s weaker.
Our government could get ahead of this by mandating that all transaction data and reserve asset custodianship for stablecoins be physically located in Canada — a move that would eliminate our reliance on foreign technology stacks.
The country has two jobs: we need to prevent colonization by foreign infrastructure for stablecoins, and we must invest more time and public consideration into building homegrown digital infrastructure for stablecoins and other digital assets.
The future of money is already being drawn up, and the forces shaping it are not necessarily thinking about what’s best for Canada’s monetary sovereignty. If the Stablecoin Act is any indication, perhaps our policymakers aren’t either. That could change.
Until next time,
Vass Bednar
This newsletter was written in collaboration with Alex Vronces. Alex is a friend of SHIELD and is leading our unified digital ledger project, which will be released in 2026.
