This is a part of a series of blog posts about the proposed federal Stablecoin Act.
Imagine a different Canada, in which the federal government wanted to adopt modern technology, attract money to Canada, and increase the safety of stablecoin users. Below is a law that proposes to do that.
How Was This Statute Written?
The statute below is what Gemini generated, based on my prompts, and the 8 principles laid out in a December 5th blog post. This was generated today, using Gemini Pro. The results are quite good, and I haven't edited what was generated. I think both Gemini and Canada aren't quite ready for AI-generated statutes, but we're very close. Read on to see what an alternative world might bring to Canada that would massively boost Canada's global reputation for innovation, greatly increase the Bank of Canada's reserve assets (in several currencies), and give Canadians the freedom to transact with stablecoins. If you email me at addison@cameronhuff.com I'll send you the prompts and other information needed to generate the law below (it takes a few steps to produce and format it). Obviously a real law would be changed quite a bit from what Gemini-generated, but it's interesting to see how far AI has come, and also interesting to see a law that includes the principles of my previous post. The Constitutional Defence Fund
is what Gemini made modelled on the Ontario Law Society Act's Class Proceedings Fund provisions.
Stablecoin Act: A Proposed Alternative Statute
Preamble
Whereas the stability and efficiency of the financial system are essential to the economic well-being of Canada;
Whereas the digitization of currency represents a fundamental evolution in global commerce and Canada seeks to be the global standard-setter for secure, transparent, and innovative digital financial instruments;
Whereas the regulation of money, banking, and the specialized regulation of trade and commerce are matters within the exclusive jurisdiction of the Parliament of Canada;
And whereas it is necessary to establish a clear federal framework that enables Canadian stablecoin issuers to compete in the global market while ensuring maximum safety through direct integration with the Bank of Canada;
Now, therefore, His Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
SHORT TITLE
Short title
1 This Act may be cited as the Stablecoin Act.
INTERPRETATION
Definitions
2 The following definitions apply in this Act.
Bank means the Bank of Canada. (Banque)
Central Reserve Token means a digital bearer asset issued by the Bank under section 9 representing a direct claim on the Bank. (jeton de réserve centrale)
Federal Ledger means the digital distributed ledger established and maintained by the Bank under section 8. (grand livre fédéral)
Fund means the Constitutional Defence Fund established under section 25. (Fonds)
Issuer means a person who issues a stablecoin. (émetteur)
Minister means the Minister of Finance. (ministre)
Stablecoin means a digital asset that is intended to maintain a stable value relative to a reference fiat currency. (cryptomonnaie stable)
PART 1
JURISDICTION AND APPLICATION
Exclusive Federal Jurisdiction
Parliamentary authority
3 (1) The regulation of stablecoins, being a matter of Currency and Coinage, Banking, and the Regulation of Trade and Commerce, falls within the exclusive legislative authority of the Parliament of Canada.
Not a security
(2) For greater certainty, a stablecoin issued in compliance with this Act is a payment instrument and a banking product, and is not a security or a derivative within the meaning of any provincial statute.
Non-application of provincial laws
4 No provision of a law enacted by the legislature of a province respecting securities or derivatives applies to a stablecoin, an Issuer, or the holding, trading, or transfer of Central Reserve Tokens.
PART 2
BANK OF CANADA INFRASTRUCTURE
The Federal Ledger
Establishment of Ledger
5 (1) The Bank shall establish and maintain a public digital ledger known as the Federal Ledger.
Public visibility
(2) The Bank shall ensure that the Federal Ledger is publicly viewable online in real-time, allowing any person to verify the total supply of Central Reserve Tokens outstanding and the holdings of any specific account on the ledger.
Purpose
(3) The purpose of the Federal Ledger is to provide a transparent, on-chain accounting of the reserves backing stablecoins issued in Canada.
Central Reserve Tokens
Issuance
6 (1) The Bank shall issue digital assets known as "Central Reserve Tokens" on the Federal Ledger.
Obligation of the Bank
(2) Central Reserve Tokens constitute a direct, unsecured debt obligation of the Bank.
Backing
(3) A Central Reserve Token shall only be issued by the Bank upon the receipt of the full face value of the token in the corresponding fiat currency.
Denominations
(4) The Bank shall issue Central Reserve Tokens denominated in Canadian Dollars, United States Dollars, and such other global reserve currencies as the Governor may determine are necessary to facilitate global commerce.
Interest
Interest payable
7 The Bank shall pay interest on Central Reserve Tokens held in the Federal Ledger at a rate determined by the Bank, which shall reflect the yield on short-term government securities of the nation issuing the reference currency, less a reasonable administrative fee.
PART 3
ISSUANCE AND OPERATIONS
Licensing and Registration
Canadian Issuers
8 (1) A person incorporated under the laws of Canada or a province may apply to the Bank for a license to issue stablecoins using the Federal Ledger.
Criteria
(2) The Bank shall issue a license if the applicant meets the requirements set out in the regulations.
Foreign Issuers
9 (1) A foreign stablecoin issuer is not required to obtain a license under this Act to have its stablecoins circulate in Canada.
Voluntary Registration
(2) A foreign issuer may voluntarily register with the Bank to obtain access to the Federal Ledger for the purpose of holding reserves.
Reserves
Requirement
10 (1) A licensed Issuer must maintain reserves equal to at least 100 percent of the par value of its outstanding stablecoins.
Authorized Assets
(2) The only permitted asset to be held in reserve by a licensed Issuer for the purpose of subsection (1) is the Central Reserve Token corresponding to the currency of the stablecoin issued.
Custody
(3) All reserve assets for licensed stablecoins shall be custodied directly on the Federal Ledger, removing the requirement for third-party trust companies or commercial bank custodians.
Consumer Benefit
Interest to holders
11 Notwithstanding any other Act of Parliament or of the legislature of a province, an Issuer is permitted to pay interest or yield to the holders of its stablecoins.
PART 4
CONSTITUTIONAL DEFENCE FUND
Establishment and Purpose
Constitutional Defence Fund
12 (1) The Bank shall establish an account to be known as the Constitutional Defence Fund.
Endowment
(2) Within sixty days after this Act comes into force, the Bank shall endow the Constitutional Defence Fund with $10,000,000 from the seigniorage revenues of the Bank.
Purposes of the Fund
(3) The Constitutional Defence Fund shall be used for the following purposes:
(a) Financial support for Issuers, stablecoin holders, or digital asset businesses who are parties to legal proceedings in which the jurisdiction of a province to regulate stablecoins as securities is contested; and
(b) Payments to satisfy costs awards made against parties who have received financial support from the Fund.
Administration
Defence Committee
13 (1) The Defence Committee is established and shall be composed of:
(a) one member appointed by the Governor of the Bank;
(b) one member appointed by the Minister; and
(c) three members appointed jointly by the Governor and the Minister, who must be experts in constitutional law or digital asset markets.
Remuneration
(2) The members of the Committee shall serve without remuneration, but each member is entitled to compensation for expenses incurred in carrying out the functions of the Committee.
Applications for Funding
Applications by parties
14 (1) A party to a regulatory or civil proceeding may apply to the Committee for financial support from the Constitutional Defence Fund in respect of legal fees and disbursements related to the proceeding.
Committee may authorize payment
(2) The Committee may direct the Bank to make payments from the Constitutional Defence Fund to an applicant if the Committee considers that the proceeding is of significant public interest regarding the division of powers between the Parliament of Canada and the provincial legislatures.
Considerations
(3) In making a decision under subsection (2), the Committee may have regard to:
(a) the merits of the applicant's constitutional argument;
(b) the potential impact of the case on the Canadian digital asset market; and
(c) any other matter that the Committee considers relevant.
Levies
15 The Governor in Council may make regulations providing for levies in favour of the Constitutional Defence Fund against a portion of the interest yield generated by Central Reserve Tokens.
PART 5
REGULATIONS AND OVERSIGHT
Flexible Regulation
Principle of humility
16 In the administration of this Act, the Bank shall exercise its powers with a view to enabling innovation and shall not presume to predict the future development of the global stablecoin market.
Powers
Regulations
17 The Governor in Council may make regulations for carrying out the purposes and provisions of this Act, including regulations:
(a) respecting the technical standards of the Federal Ledger;
(b) prescribing the conditions under which the Bank may waive strict compliance with this Act for the purpose of a regulatory sandbox;
(c) respecting the administration of the Constitutional Defence Fund; and
(d) establishing an administrative monetary penalty scheme for non-compliance by licensed Issuers.
COMING INTO FORCE
Order in Council
18 This Act comes into force on a day to be fixed by order of the Governor in Council.