Canada doesn’t need a digital loonie to maintain sovereignty from the U.S. — it needs digital competition

A yield-bearing Canadian stablecoin could be a key differentiator, driving demand for Canada’s currency in the competitive foreign exchange market. Photo by Peter J. Thompson/National Post

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With the rapid innovation in payments and the rise of United States-dollar-backed stablecoins, many in government assume they must respond with a state-run central bank digital currency alternative. In Canada, that assumption is unfounded.

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While most opponents of CBDCs focus on privacy issues and government overreach — they oppose money as a new form of surveillance technology, as it has become in a few digitally advanced states — the more prosaic but no less essential problem is that a Canadian digital dollar would simply arrive too late and prove less useful than private-sector alternatives already in development. In fact, Canada has already seen the launch of a stablecoin from a regulated financial institution in the private sector: Tetra Digital Group’s CADD.

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In a world of open, programmable financial networks such as Ethereum, a state-run system risks looking less like the future of money and more like digital wallpaper.

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It’s certainly possible, as advocates suggest, that a CBDC would reduce friction in the system and drive efficiencies for banks and businesses. But implicit in that view is that governments and incumbents — such as the country’s largest banks — should control the next generation of financial infrastructure.

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The history of innovation, however, teaches us that it is new entrants and new ideas that stimulate an economy.

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Moreover, CBDCs would do little to address policymakers’ main concern: preserving Canada’s monetary sovereignty in a world of rapidly evolving digital finance led by the U.S.

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In fact, by the time Canada designs, tests and deploys its own digital currency, the market will have moved on. Stablecoins — most notably Circle Internet Group Inc.’s USDC — backed one-to-one by U.S. dollars, are already scaling globally. In Canada, they are a popular asset on fintech platforms such as Wealthsimple and Shakepay, and they are embedded in payments, trading and decentralized finance around the world.

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Canadians have never thought much of the idea that the U.S. dollar might replace the Canadian dollar in day-to-day transactions, as it has replaced the local currency in countries such as Argentina. But the world is a flat place. Information already moves instantly, globally and peer-to-peer. Now, money and other digital assets do, too, with blockchain technology.

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Given the Trump administration’s aggression towards Canada, the issue warrants closer attention.

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The good news is we already have a plan and policy framework to address this.

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In March, embedded in Bill C15, was the Stablecoin Act, landmark legislation to establish a comprehensive framework for stablecoins in Canada.

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The new law creates a registration regime for issuers, mandates at-par redemption and places oversight with the Bank of Canada.

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The stated goal is to “promote safe innovation and competition in the financial sector” and protect consumers. A sensible equilibrium of clarity, competition and consumption will lead to better outcomes for Canada.

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The United States has already made its choice. With the passage of last year’s Genius Act, it has created a clear regulatory framework for private stablecoin issuers, and the results speak for themselves. Growing at a rapid pace, U.S. dollar stablecoins have surpassed US$300 billion in circulating supply globally. They are available in almost every country on Earth. European policymakers are already warning that U.S. stablecoins could threaten monetary sovereignty in Europe.