The development of global standards for stablecoins has decelerated over the past year, sparking concerns among central bankers that inadequate 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 regulations 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 rules that could be exploited by firms. Without international alignment, companies may shift operations to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage.
The stablecoin sector has grown significantly, now accounting for $320 billion, with Tether's USDT and Circle Internet's USDC making up the majority. De Cos highlighted that the structure of stablecoins can resemble securities more than cash, and that redemption issues can lead to price fluctuations. 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 believe such measures could enhance the safety of the sector 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, with lawmakers negotiating a compromise on stablecoin yield that could pave the way for a markup.