The development of global standards for stablecoins has experienced a significant slowdown over the past year, sparking concerns among central bankers about the potential for market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, recently stated that progress on international rules has stalled. This has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation to avoid 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.
Major economies are pushing forward with their own frameworks, often with different approaches and timelines. 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. According to de Cos, the structure of stablecoins can resemble securities more than cash, and redemption frictions can cause prices to deviate from their intended value of $1. He also warned that sudden withdrawals could have a ripple effect through markets.
To reduce risk, 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 would establish federal rules for digital asset markets. The bill passed the House last year and is currently before the Senate, where lawmakers are leading the effort to push it forward.
A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.