The development of global standards for stablecoins has experienced a slowdown over the past year, prompting concerns among central bankers about potential market fragmentation and increased risk. According to Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, progress on international rules has stalled.
Bank for International Settlements General Manager Pablo Hernández de Cos expressed similar concerns, emphasizing the importance of global coordination to prevent a patchwork of regulations that companies could exploit by shifting operations to areas with less stringent oversight. De Cos warned that without international alignment, regulatory arbitrage could occur, where firms take advantage of varying rules across jurisdictions. As major economies move forward with their own frameworks, often with different approaches and timelines, the stablecoin sector continues to grow, currently valued at $320 billion. The sector is dominated by Tether's USDT and Circle Internet's USDC.
De Cos noted that the structure of these stablecoins can resemble securities more than traditional currency, with redemption issues potentially causing price fluctuations. He also highlighted the risk of sudden withdrawals triggering market instability. To address these risks, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities. Policymakers believe such measures could enhance the safety of the sector while preserving its role in digital payments.
In the United States, lawmakers are working on the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets. The bill, currently before the Senate, seeks to provide clarity on the regulation of digital assets, including stablecoins. Senators are negotiating a compromise on stablecoin yield, which could pave the way for further action. A hearing on the matter is expected in the second half of April, contingent on resolving outstanding issues, including DeFi oversight and ethics provisions.