bankofcanada

The regulatory framework for stablecoins which is central to the Bank of Canada is considering to aid in modernizing the payment system is the focus of the Advanced Digital Finance Strategy. Digital Finance globally is moving in a rapid pace, and so Canada should act quickly in order to stabilize the consumer. Ron Morrow delivered a compelling session on Payments, on the 18th of September 2025. Executive director of the Bank of Canada argued about the stablecoins in order to push the Federal and provincial jurisdictions towards collaboration. This switch towards focus is seen in a strategic manner on real time payment systems, which is a shift from Central Bank Digital Currency (CBDC) systems.
The Case for Stablecoin Regulation
Digital tokens linked to the US dollar or the Canadian dollar, known as stablecoins, are considered as game changing in the world of payments due to their ability to provide faster and cheaper services compared to traditional payment methods, especially for international payments. Morrow highlighted the importance of stablecoins, as to function as stable, reliable and liquid money, they have to provide the user with the same level of safety and stability as the balance of a banking account would. There existed, and continues to exist, a lack of regulation. This creates the risks of credit and liquidity problems which can undermine the trust a consumer has in the financial system and overall system-stability. He would like to see more of these developed nations in Canada, many of which have comprehensive regulations, or are bordering on having completed regulations, on crypto assets. He mentioned the US GENIUS Act as a factor that stimulated the recent activity in stablecoins, which they have dubbed the “stablecoin summer.”
The Bank of Canada’s advocacy is reflective of fears that a stablecoin system with no regulation could destabilize the financial system by siphoning bank deposits and thus, the ability of these banks to lend. To fulfill this, the Office of the Superintendant of Financial Institutions (OSFI), the Finance Department and the Bank of Canada are working on a proposal that addresses a combination of regulatory gaps pertaining to stablecoins, such as the right to issue, adequate licensing, reserve ratios, and consumer protection. This is designed to ensure that issuers of stablecoins whether banks or fintech, meet the minimum standards of regulation and enforcement which are considered to be fundamental to any system of enforcement.
Global Context: The Stablecoin Summer
The world stablecoin market which is mainly pegged to the U.S. dollar has continued to expand rapidly. This was demonstrated by its transaction volume which hit $1.3 trillion during the second quarter of the 2025 financial year. The dawning of the GENIUS Act in 2024 provided a significant boost to this growth by ensuring 100% reserve backing for stablecoins to be a legal requirement thereby enhancing convergence trust and institutional acceptance. Other jurisdictions like the European Union with its MiCA framework have also started implementing stablecoin regulations which encourages innovation while protecting consumers. Morrow has cautioned that Canada has not taken action in this regard and risks losing competitive advantage as other countries incorporate stablecoins into their financial infrastructure.
At the moment, Canada's approach to crypto is regulatory and has remained disorganized. This is under the purview of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act which along with the compliance with the provincial securities AML regulations creates a grey zone for crypto issuers. Morrow's speech focused on the importance of establishing a centralized regulatory approach which self-evidently would be to the advantage of customers.
Shifting Priorities: From CBDC to Real-Time Payments
The shift from developing a digital Canadian dollar in partnership with MIT in 2022 to not developing one at all now shows a change in the preferred focus of the Bank of Canada which has also been working on the regulatory framework of stable coins. Canada’s central bank also showed in September of 2024 along with the results of a survey undertaken in 2024 which showed that 42% of Canadians are in favor of a central bank digital currency while 20% are against the idea due to the conflict of principles in finance concerning state surveillance that digital currencies invoke, that state in principle is not directly against the idea of having such a digital currency, which would be in essence a digital Canadian dollar, surveillance is a concern. The payments ecosystem is an immediate concern due to the direct need of having a stable digital dollar, therefore the Bank of Canada invites private sector payment solution providers to the real-time payment system of remote banking projects, which are sufficient with the immediate payments ecosystem. The shift from developing a digital dollar due to MIT to abandoning them now shows the idea is to switch focus on developing a real-time stablecoin system which the private sector is allowed to innovate on.
The Bank of Canada balances the payment with regulatory focus on stable coins without the aim to surveillance, which is a paramount concern in today’s finance within the permissions given. CBDCs balancing frameworks of finance with the primary aim to surveillance state concern is the greater innovation of the private systems.
Challenges and Opportunities for Canada
The proposed stablecoin framework comes with both issues and opportunities. A well-crafted regime might allow Canada to serve as the center of the digital finance industry which might attract and develop more fintech opportunities and economic growth. By offering low-cost transactions, stablecoins might serve as a complement to real-time payment systems which can improve Canada’s cross-border trade and involvement in tokenized assets. On the other hand, regulatory delays, as well as overreach, might push issuers to the U.S. or EU with more defined policies. eshed legal frameworks.
The constructive engagement of the Bank of Canada along with OSFI and the Department of Finance is a sign of a proactive strategy. The first versions of the drafts are expected in the beginning of 2026. Certain elements, such as mandatory licensing, backing of the full reserves with High-Quality Liquid Assets (HQLA) and consumer protections allowing redemption at par value, are critical. These policies are designed to allow stablecoins to be incorporated to the Canadian economy while reducing the system-wide risk.
Looking Ahead: A Critical Juncture for Canada’s Digital Economy
As the adoption of stablecoins accelerates globally, Canada finds itself at a fulcrum. Morrow’s Regulations warning highlights the importance of swift action so Canada does not fall further behind the U.S. or the E.U. Canada’s clear, equilibrium-based policies framing the use of stablecoins would allow Canada to modernize payments, enhance financial inclusion, and stimulate economic innovation. “The Bank of Canada’s decline in emphasis from exploring a Central Bank Digital Currency (CBDC) to focusing on the regulation of stablecoins and real-time payments is a pragmatic response to ‘global’ shifts’ while satisfying ‘domestic’ demands.”
The next few months will be critical as regulatory authorities develop a more nuanced approach and begin, in earnest, to engage constructive industry players to shape policies that build trust while enabling growth. With the potential to accept or refuse stablecoins, Canada's regulatory policies will be the deciding factor on Canada’s position in the global digital economy, as well as ongoing competitiveness in a rapidly changing financial environment.
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