The development of international standards for stablecoins has experienced a significant 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 global rules has come to a standstill, according to recent reports. This development has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation in a statement made in Japan on Monday. De Cos warned that without unified international regulations, companies may take advantage of more lenient oversight in certain jurisdictions, a practice known as regulatory arbitrage.
His warning coincides with major economies advancing their own stablecoin frameworks, often with differing approaches and timelines. The stablecoin market has grown substantially over the past few years, with its current value standing at $320 billion, according to data from DeFiLlama.
Tether's USDT and Circle Internet's USDC account for the majority of this figure. De Cos pointed out that the structure of these stablecoins can resemble securities more closely than traditional cash, and that difficulties in redeeming them can cause their prices to deviate from their intended value of $1.
He also highlighted the potential for sudden withdrawals to have a ripple effect throughout the markets. To reduce these risks, proposals have been put forth to limit interest payments on stablecoins and to provide issuers with access to central bank lending facilities or deposit insurance-type arrangements. Policymakers argue that such measures could enhance the safety of the stablecoin 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 it is being led by Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman. Senators Thom Tillis and Angela Alsobrooks have negotiated a compromise on stablecoin yield, which could pave the way for the bill to move forward, while Senator Cynthia Lummis, who chairs the Banking Committee's digital assets subcommittee, has indicated that a hearing may take place in the second half of April. However, a deal remains contingent on resolving several outstanding issues, including oversight of DeFi and ethics provisions.