Canada is preparing to introduce regulations for fiat-backed stablecoins as part of its federal budget for 2025, mirroring the United States, which passed significant stablecoin regulations in July.

Stablecoin issuers will be mandated to maintain adequate reserves, develop redemption strategies, and implement various risk management protocols aimed at safeguarding personal and financial information, as outlined in the government’s 2025 budget released on Tuesday.

To support this initiative, the Bank of Canada plans to allocate $10 million over two years beginning in the 2026-2027 fiscal year, with estimated annual expenses of $5 million to be covered by stablecoin issuers regulated by the Retail Payment Activities Act.

This announcement comes nearly four months after the US enacted the GENIUS Act, aimed at stablecoins, which has prompted Canada to establish its own legislative framework.

Although the timeline for introducing the legislation hasn’t been specified, it forms part of a comprehensive strategy to enhance payment systems in order to make digital transactions faster, more affordable, and secure for Canada’s 41.7 million citizens.

Source: Stand With Crypto Canada

Coinbase Canada CEO Lucas Matheson expressed optimism regarding the proposal, stating in a report from CBC that it has the potential to “transform how Canadians engage with money and the internet indefinitely.”

Institutional adoption of stablecoins is increasing

Presently, the stablecoin sector is valued at $309.1 billion, with the US Treasury estimating that it could surge to $2 trillion by 2028. Institutional engagement is on the rise, as companies like Western Union, SWIFT, and MoneyGram are integrating or planning to integrate stablecoin solutions.

Tetra Digital, a key player in the Canadian stablecoin landscape, has raised $10 million to develop a digital version of the Canadian dollar, attracting investments from Shopify and the National Bank of Canada.

In light of this, Canada has decided to abandon its plans to introduce a central bank digital currency as of September 2024, with Bank of Canada Governor Tiff Macklem indicating there was not enough justification to move forward with it at this time.