US Stablecoins Are Coming: Canada Must Act to Protect Payment System Sovereignty

January 27, 2026 – The expansion of US dollar-linked stablecoins is accelerating a revolution in how payments are made – raising growing concerns about Canada’s ability to maintain control over its monetary system and domestic payment infrastructure, according to a new C.D. Howe Institute report.

In “The Window Is Closing: How Canada Can Shape the Future of Stablecoins and Digital Payments,” authors Peter MacKenzie and Mark Zelmer assess how recent international developments – particularly the United States’ 2025 GENIUS Act – are reshaping the competitive and regulatory landscape for digital payments. While Canada has taken an important step by enacting the Stablecoin Act, the authors warn that key regulatory design choices remain unresolved and will determine whether Canada will be able to capture innovation benefits while preserving its ability to conduct its own monetary policy and oversee payment systems.

“Stablecoins are quickly becoming part of the payments mainstream,” says MacKenzie, Senior Policy Analyst at the C.D. Howe Institute. “If Canada does not establish a coherent regulatory framework of its own, foreign-issued stablecoins and platforms will increasingly set the terms under which Canadians transact.”

The report outlines both the potential benefits and the risks of stablecoins. On the one hand, stablecoins can lower transaction costs, enable faster cross-border payments, and support programmable financial applications. On the other hand, without clear and coherent regulation, they could contribute to monetary fragmentation, weaken consumer protections, and shift control of payment infrastructure to foreign issuers and platforms.

To address these challenges, the authors recommend a two-track regulatory model that aligns oversight with economic function rather than technology. Under this approach, pure payment stablecoins would be regulated as fully backed payment instruments under Bank of Canada oversight, while future tokenized bank deposits would remain within existing prudential banking frameworks. This distinction, the report argues, would preserve financial stability while allowing innovation to proceed.

“Integrating stablecoins to a central bank digital currency would give Canada a more resilient and coherent digital payments architecture,” says Zelmer, Fellow-in-Residence at the C.D. Howe Institute. “It would support innovation while preserving confidence in the Canadian dollar.”

“Canada still has an opportunity to shape the evolution of digital payments on its own terms,” says MacKenzie. “But that success will depend on how effectively the Stablecoin Act is implemented and how quickly regulatory clarity is delivered.”

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The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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