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, has reported that progress on international regulations has stalled.
This has raised concerns for Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation in avoiding a patchwork of rules that could be exploited by firms. Without international alignment, companies may engage in regulatory arbitrage by shifting operations to jurisdictions with more lenient oversight. 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.
According to de Cos, the structure of these stablecoins can resemble securities more than cash, with redemption frictions potentially causing prices to deviate from their intended $1 value. He also warned that sudden withdrawals could have a ripple effect through 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 argue that 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, where committee chairs are leading the push for its advancement. A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.