The development of global standards for stablecoins has slowed down over the past year, sparking concerns among central bankers that a lack of oversight could lead to market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international rules has come to a halt, according to recent reports. This has raised concerns for Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation in avoiding a patchwork of regulations that companies could exploit. Without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage.
As major economies push forward with their own frameworks, often with different timelines and approaches, the stablecoin sector continues to grow, now valued at $320 billion. The two largest stablecoins, Tether's USDT and Circle Internet's USDC, make up the majority of this figure. De Cos pointed out that their structure can be more similar to securities than cash, and that redemption issues can cause prices to deviate from their intended value of $1. He also warned that sudden withdrawals could have a ripple effect on markets.
To mitigate these risks, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities or deposit-insurance-type arrangements. Policymakers argue that such measures could make the sector safer while preserving its role in digital payments.
In the US, lawmakers are working to advance the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets. The bill has passed the House and is currently before the Senate, where lawmakers are leading the push for its advancement. While a deal is contingent on resolving several open questions, including DeFi oversight and ethics provisions, a hearing could take place in the second half of April.