The development of global standards for stablecoins has experienced a slowdown over the past year, sparking concerns among central bankers that regulatory gaps 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 standstill, according to recent reports. This development has raised concerns, with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation to prevent 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. The warning comes as major economies push forward with their own frameworks, often with different timelines and approaches. The stablecoin sector has grown significantly over the past few years, now accounting for $320 billion, with Tether's USDT and Circle Internet's USDC making up the majority of this figure.
De Cos noted that the structure of these stablecoins can resemble securities more than cash, with redemption frictions potentially causing prices to deviate from their intended value of $1. He also highlighted the risk of sudden withdrawals having a ripple effect on markets. To reduce 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 enhance the safety of the sector while preserving its role in digital payments. In the United States, lawmakers are working to advance the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets. The bill, which passed the House last year, is currently before the Senate, where committee chairmen are leading the effort to move it forward.
A potential compromise on stablecoin yield could pave the way for further action, although a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.