The Bank of Canada drops a bombshell! Stablecoin reserves must be 100% backed by government bonds to pass the test

The Governor of the Bank of Canada, Tiff Macklem, delivered a shocking announcement to the Montreal Chamber of Commerce: any stablecoin circulating in Canada must be pegged 1:1 to the central bank’s currency and fully backed by high-quality liquid assets such as treasury bills and government bonds, supported 100%, with a zero-fee, instant redemption mechanism. This standard far exceeds the practical operations of current mainstream stablecoins like USDT and USDC, indicating that Canada is building the world’s most stringent stablecoin firewall.

The Three Lines of Defense in the Sovereignty Protection War of Currency

Canada’s tough stance on stablecoins essentially constitutes a sovereignty protection war. Macklem’s statements reveal three core demands that go far beyond mere financial regulation.

The first line of defense is the strict limitation on reserve assets. “Stablecoins must be supported by high-quality liquid assets so that they can always be redeemed at face value for cash.” Macklem explicitly states that this means reserves must be government-backed instruments, such as treasury bills and government bonds, which can be quickly sold without significant loss. This standard directly impacts the business models of current stablecoin issuers.

For example, Tether (USDT) has long been opaque about its reserves, claiming to be backed by USD assets, but the exact ratio and quality have always been questioned. Circle (USDC), while more transparent, also holds assets like commercial paper and corporate bonds, which carry higher risks. Canada’s standard requires 100% government bond reserves, which will significantly compress the profit margins of stablecoin issuers.

The second line of defense is user-friendly redemption mechanisms. Macklem emphasizes that issuers should fully disclose redemption conditions, including redemption times and any fees. “We want stablecoins to become high-quality currencies like banknotes or bank deposits.” This requirement seems simple but is actually challenging. Most current stablecoins have complex redemption processes, often requiring KYC verification, bank account validation, with redemption times ranging from hours to days, and may charge fees. The demand for zero-fee, instant redemption will force issuers to redesign their entire operational systems.

The Three Iron Laws of Canada’s Stablecoin Regulation

1:1 Peg to Central Bank Currency: Must be equal in value to the Canadian dollar, with no discounts or premiums

100% Government Bond Reserves: High-liquidity assets such as treasury bills and government bonds, excluding commercial paper and corporate bonds

Zero Fee, Instant Redemption: Can be exchanged at face value at any time, without any fees or time restrictions

The third line of defense is transparency and information disclosure. This is not only a technical requirement but also the foundation of trust. Consumers and businesses must clearly understand what they are purchasing before relying on the token for payments. Such transparency is not common among stablecoin issuers; Tether’s long-term opacity has been its biggest controversy.

The Sovereign Threat to the Globalization of USD Stablecoins

Canada’s urgency does not come out of nowhere but stems from deep concerns about the globalization of USD-backed stablecoins. As more USD stablecoins circulate globally, policymakers in other countries are beginning to worry about monetary sovereignty. If local users default to using foreign digital dollars in daily transactions, it poses threefold threats.

First is the weakening of monetary policy transmission. When Canadians use USDT or USDC for daily payments, the effectiveness of the Bank of Canada’s interest rate adjustments diminishes. The efficacy of monetary policy depends on the proportion of the national currency in circulation; if a large volume of transactions shifts to USD stablecoins, the central bank’s ability to control the economy is undermined.

Second is the loss of financial data. Stablecoin transaction data is controlled by issuers, not Canadian financial regulators. This data loss makes it difficult for the Bank of Canada to accurately assess economic conditions and formulate policies, akin to blind men feeling an elephant.

Third is the externalization of financial stability risks. If a widely used USD stablecoin experiences a run or collapse (such as the USDC de-pegging caused by the 2023 SVB incident), Canada’s payment systems and financial markets could be impacted, but the Bank of Canada would be unable to intervene and rescue as it would with domestic banks.

This is why Macklem positions his stance as pragmatic rather than promotional. “The Bank of Canada has no obligation to encourage or prevent the use of stablecoins. Its responsibility is to ensure that if Canadians and Canadian businesses want to use stablecoins, those stablecoins can indeed maintain stability.” This statement both preserves market freedom of choice and provides a rationale for strict regulation.

The 2026 Deadline and Modernization of the Payment System

The Ministry of Finance announced that next year it will introduce stablecoin regulation, with the Bank of Canada acting as the regulatory authority. This timeline is not arbitrary but closely linked to the overall upgrade cycle of Canada’s payment infrastructure. Macklem pointed out that with the modernization of Canadian infrastructure, including the real-time settlement system aimed at achieving instant clearing, more innovations are expected by 2026.

Open banking is another pillar. Macklem stated that the Bank of Canada is committed to implementing open banking, making it easier for customers to compare services and switch banks. Stablecoin regulation is part of this broader package, aiming to maintain financial innovation while ensuring system security and monetary sovereignty.

Ottawa’s sense of urgency also reflects international competitive pressure. After the U.S. GENIUS Act created a clearer framework for USD-backed stablecoins, supporters believe this could accelerate their adoption. If Canada does not establish its own regulatory system in time, it risks falling behind in the digital currency race.

However, overly strict regulation could backfire. Requiring 100% government bond reserves and zero-fee instant redemption may make stablecoin issuance unprofitable in Canada. If mainstream stablecoin issuers choose to exit the Canadian market, it could push users toward offshore platforms with looser regulations, ultimately undermining regulatory effectiveness.