Bank of Canada Governor Tiff Macklem in Ottawa last week. Mr. Macklem’s focus on the nature of money comes amid a burst in interest in stablecoins.Justin Tang/The Canadian Press
The Bank of Canada is emphasizing the need for stable and secure money as private digital currencies, known as stablecoins, have begun to proliferate and raise questions about the future of the global monetary system.
Governor Tiff Macklem used his year-end speech in Montreal to extol the virtues of what he called “good” money: means of payment that are safe, easy to transact with and have a stable purchasing power.
Mr. Macklem’s focus on the nature of money follows a burst in interest in stablecoins – a type of digital currency whose value is meant to be pegged one-to-one to a national currency, such as the U.S. dollar. This differs from other popular cryptocurrencies such as Bitcoin whose value fluctuates wildly.
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Stablecoins have begun to go mainstream after the passage of the GENIUS Act in the U.S. earlier this year, which regulates U.S. dollar-denominated stablecoins, with the goal of accelerating adoption.
Other countries, including Canada, are scrambling to catch up – both to benefit from potential innovations tied to stablecoins, and to prevent their own monetary sovereignty from being undercut by the local adoption of U.S. stablecoins.
The federal government said in its fall budget that it is developing a regulatory framework for Canadian stablecoins, and has tasked the Bank of Canada with overseeing the new system.
“It’s not really up to the Bank of Canada to encourage stablecoins or discourage stablecoins. What is up to the Bank of Canada is to ensure that if Canadians, Canadian businesses want to use stablecoins, they are, in fact, stable,” Mr. Macklem said in a news conference after his speech.
He outlined, in broad strokes, what will be required for any Canadian stablecoin.
They will need to be pegged one-to-one to a central bank currency and backed by high-quality liquid assets so they can be easily converted into cash at par.
As laid out in the GENIUS Act, U.S. stablecoins must be backed with reserves of cash or short-term U.S. treasuries.
Likewise, any information about redeeming a Canadian stablecoin, including timing and fees, will need to be fully disclosed, and issuers will need to have “operational resilience” to reduce the chance they fold and wipe out customers.
“These are a new, innovative kind of money. They potentially have benefits, but they also bring some risks. You know, just like there could be a run on a bank, like a run on deposits, there could be a run on a stablecoin,” he said.
“The design is going to be very important – that they’re backed one-for-one with high-quality liquid assets – so that there are no questions about the convertibility back to cash. If everybody’s confident that they’re convertible back to cash, that will reduce the risks of runs,” Mr. Macklem said.
Advocates say stablecoins have the potential to improve the speed and cost of financial transitions.
Skeptics worry about financial stability risks, given that they are neither backed by the central bank – as with physical cash – nor are they covered by deposit insurance, like electronic money in a bank account.
There are also important questions about how the commercial banking system could change if more Canadians kept their money as digital assets rather than in traditional bank accounts. This could impact how credit is created and how monetary policy is transmitted through the economy.
Right now, a number of major jurisdictions around the world are trying to co-ordinate their development of stablecoin regulation, Mr. Macklem said. “You wouldn’t want stablecoins issued in one place to all get redeemed in another place as some sort of arbitrage strategy,” he said.
Stablecoins are only one of the financial-sector innovations that the Bank of Canada will be managing in 2026. Canada’s long-delayed real-time rail payments system, which is intended to speed up transaction settlement times, is meant to come online next year.
And the central bank will be overseeing the country’s new open banking system, which is designed to give individuals more control over their financial data.
The Bank of Canada is also working on innovation in one of its traditional lines of work: printing physical cash.
Mr. Macklem said that work is under way on the new $20 bill. This will be issued in early 2027 and will have new anti-counterfeiting features.
“We’ve used 3-D features before, and we’ve used features that shift when the note is moved. Our $20 note will combine these two technologies for the first time. I wish I could tell you more, but you’ll have to wait for the unveiling next year,” he said.
The new note will have King Charles III on the front and the Canadian National Vimy Memorial in France on the back, Mr. Macklem said. A new $5 note featuring Terry Fox will follow soon after.
The bank will also be conducting a five-year review of its monetary policy framework next year. Mr. Macklem reiterated that the bank will not be reassessing its 2-per-cent inflation target.
But it will be looking more closely at the connection between inflation and housing affordability, he said, as well as thinking about new ways to conduct monetary policy in a rapidly changing world.
“We recognize that structural shifts – the rise of artificial intelligence, climate change, trade disruptions and geopolitical instability – make global economies increasingly vulnerable to shocks and uncertainty,” he said.
“We want to be sure the way we use our flexible inflation-targeting framework gives us the best chance of keeping inflation low and stable in a more shock-prone world.”