Canada Accelerates Work on Stablecoin Rules as US Speeds Ahead

Circle Internet signage in front of the New York Stock Exchange. Photo by Michael Nagle /Photographer: Michael Nagle/Bloo

Article content

(Bloomberg) — Canada is consulting on rules for stablecoins and may announce a major update in the federal budget next week, according to people familiar with the matter.

Article content

Government officials have been having detailed discussions with regulators and industry participants for weeks, the people said, asking not to be named because the discussions are private. They have indicated they are working toward addressing the issue in budget documents that Finance Minister François-Philippe Champagne will unveil on Nov. 4, the people said. 

Article content

Article content

Article content

Stablecoins are cryptocurrencies that are pegged to fiat currencies such as the US dollar to maintain their value, mitigating the volatility that’s often associated with digital tokens. Today, stablecoins are typically issued by non-bank private entities such Tether Holdings SA and Circle Internet Group Inc., and they’re sometimes backed by other liquid assets such as US Treasury bills. 

Article content

Article content

In July, the US passed the Genius Act, which allows financial regulators to police stablecoin issuers and how they manage reserves, and requires issuers to comply with rules to prevent money laundering and sanctions-busting. The new law was welcomed by many in the crypto industry as helping it go mainstream. 

Article content

The US bill characterizes compliant stablecoins as payment instruments.

Article content

In Canada, however, in the absence of legislation, regulators have said stablecoins may constitute securities or derivatives. Some experts believe they should instead be regulated as payment instruments with strict oversight.

Article content

John Ruffolo, founder of Maverix Private Equity and vice chair of the Council of Canadian Innovators, a tech lobby group, has been urging the government to act quickly. If it doesn’t, Canadian capital will flow south of the border, he said. 

Article content

Article content

Without regulation to support Canadian-dollar stablecoins, savers in Canada might spurn deposits for US stablecoins — which can be used to transfer money internationally. That, in turn, would hit demand for Canadian bonds, potentially pushing interest rates up as well as loosening the Bank of Canada’s grip on the money supply and ceding control of capital held in US dollar-backed stablecoins to American regulators, he argued.

Article content

“Every Canadian who transacts in a US stablecoin funds American debt, enriches American institutions and exports our financial data south,” Ruffolo wrote earlier this month.

Article content

Some 99% of stablecoin value is currently pegged to the US dollar, according to Desjardins foreign exchange strategist Mirza Shaheryar Baig, and because the Genius Act requires stablecoins to be backed mainly by US T-bills, “foreign adoption creates new and sticky demand for US debt.”

Article content

Ron Morrow, the Bank of Canada’s executive director of payments, supervision and oversight, said in September that Canada should “weigh the merits of federal stablecoin regulation, similar to what other countries have done.” Canada’s bank regulator, the Office of the Superintendent of Financial Institutions, has voiced concern at the country’s lack of stablecoin rules.