Canada to Roll Out Regulations Governing Stablecoins

By Paul Vieira

OTTAWA--Canada intends to roll out a regulatory regime for stablecoins, the cryptocurrency backed by government-issued currencies.

In the government's annual budget plan unveiled on Tuesday, Canada's Department of Finance said it would produce legislation that will require stablecoin issuers to maintain and manage adequate asset reserves, establish redemption policies, protect Canadians' privacy, and include national-security safeguards.

Timing as to when the legislation would be drafted and submitted to parliament wasn't provided.

Stablecoins are cryptocurrencies that peg their value to a stable asset, most notably a government-issued currency. President Trump in July signed into law the Genius Act, which establishes a regulatory framework for stablecoins, requiring issuers to back their tokens with reserves of cash, short-term Treasurys and similarly safe assets.

The U.S. regulation has sparked a surge in interest in dollar-pegged cryptocurrencies from startups, banks and merchants like Amazon.com and Walmart. Last week, Western Union said it would pursue a U.S. dollar-backed stablecoin to let its 100 million customers send money internationally detached from local currency fluctuations and risks.

Ron Morrow, head of payments and supervision at the Bank of Canada, called for Ottawa to introduce unified, federal rules on stablecoins in a speech in September. He said the current approach is fragmented, divided among provincial authorities and federal agencies.

Globally, stablecoin use has been rising in recent years and accounts for about $1 trillion in annual transactions. Treasury Secretary Scott Bessent has said a thriving stablecoin ecosystem will cement the U.S. dollar's dominance and drive demand for U.S. Treasurys, which in turn "could lower government borrowing costs and help rein in the national debt."

As a result, stablecoins represent an issue of economic sovereignty, according to executives and lawyers in the cryptocurrency field.

"If the Canadian approach to stablecoins is not harmonized with the American and international approaches, this will not only isolate Canada from the emerging international payment stablecoins ecosystem, but also result in Canadians using foreign issued stablecoins within the Canadian economy--resulting in varying impacts on Canadian monetary policy and monetary sovereignty," said Mohammed Muraj, a top Canadian law firm, who speicializes in dealing with blockchain and fintechs.

Write to Paul Vieira at paul.vieira@wsj.com