Dollar Dominance: Rethinking Stablecoin Policy for a Digital Economy

By Claire Wilson
CCI Research and Policy Analyst

It was a funny thing, when Consensus 2025 descended upon Toronto earlier this year. Almost 15,000 crypto enthusiasts gathered to talk about the future of alternative digital assets.

Toronto is the birthplace of Etherium, the world’s second most important cryptocurrency. But today, Toronto lags behind its peers.

While many leading jurisdictions are working to develop regulations that allow for future innovation and growth in cryptocurrency products, Canada has all but shut down that conversation. The most significant recent action on cryptocurrency in Canada is the Ontario Securities Commission announcing last year that they will treat stablecoins as securities. Rather than providing a fit-for-purpose regulatory framework, this approach creates significant legal barriers. That’s a recipe for long-term disadvantage, as Canadian players are forced to sit on the sidelines under threat of heavy-handed regulatory enforcement, while critical roles will be filled by foreign competitors.

To some extent, how you think about this whole situation comes down to whether you think crypto is useful at all. Skeptics see the whole space as little more than a haven for speculators and scam artists. What’s worse, regulators often see crypto as a vehicle for outflows from the traditional financial system into a decentralized grey-market system with minimal oversight.

But arguably the most interesting and useful innovation in the whole cryptocurrency space is in the realm of stablecoins. The potential of stablecoins goes far beyond speculation; they reduce cross-border transaction frictions, slash fees, and enable faster transaction settlements.

Stablecoins like Tether and USD Coin circumvent hyper-volatility of traditional cyptocurrencies by pegging themselves to a real-world currency. The issuers of such coins are expected to hold real-world fiat currency and each token they issue can be redeemed for hard currency at a 1:1 ratio. One USD Coin is equivalent to one real US dollar, and reserves are held in a combination of short-dated US treasuries and cash deposits.

Part of stablecoins’ appeal is their low transaction costs. Stablecoin issuers often tout international remittances as an area particularly ripe for the stablecoin revolution. Every year, 250 million migrant workers send $550 billion across borders. While fees for sending money between two G7 countries are relatively low, the cost of sending money to emerging markets remains high, often double digits. By circumventing traditional banking infrastructure, stablecoins have the potential to dramatically reduce costs and speed up transaction times.

Stablecoins also have the effect of raising the attractiveness of a country’s currency. If global users want a brand new “CADcoin”, they’d exchange their local currency for a digital token backed by Canadian dollars. That money then sits within the traditional finance system. The ability of stablecoins to reinforce the dominance of existing currencies, like the US dollar, is one reason the EU is pushing ahead with its new stablecoin framework and planning to launch a digital euro later this year.

The novelty of crypto and stablecoins and their revolutionary implications for the financial sector have caused apprehension among economists and central bankers alike — including, notably, Prime Minister Mark Carney. To him, matters of money and finance are simply too important to be left to the market; the government should be the one issuing money.

This is where a certain kind of finance geek will start talking about central bank digital currencies — essentially, a stablecoin issued by the Bank of Canada itself — but since the Bank of Canada has quietly shelved plans to create a CBDC, we probably don’t need to worry about that too much.

What we do need to worry about, though, is whether Canada is being marginalized as a new era of monetary instruments is born.

As of June 2025, there were $157 billion worth of USDT in circulation globally, and Circle held $61.6 billion in reserves backing its USDC. Demand for these coins is only expected to grow, and with it, demand for US dollars.

Right now in Canada all cryptocurrencies, including stablecoins, are regulated as securities – like a stock or bond. This creates prohibitive regulatory requirements for issuers, and it doesn’t make a lot of sense, because stablecoins aren’t really securities. When pegged 1:1 they don’t generate profits for their holders. This is why the EU, under MiCA, now classifies (eligible) stablecoins as “E-Money Tokens” and the United States GENIUS Act defines them as digital assets meant to be used as a means of payment.

Beyond its potential returns to the economy and ability to create more choice for consumers, missing out on the crypto and stablecoin boat is likely to have the incredibly unattractive effect of consolidating the so-called “exorbitant privilege” of American dollar dominance.

Currently, a whopping 98 percent of stablecoins are pegged to the US dollar. If Canada fails to create the regulatory space for homegrown coins, Canadians will continue to rely on US-based ones, driving capital outflows and weakening our monetary sovereignty.

--

Claire Wilson is a Research and Policy Analyst at CCI. She can be reached at cwilson@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here.