The development of global standards for stablecoins has experienced a significant slowdown over the past year, sparking concerns among central bankers about potential 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, according to Reuters. This has raised concerns with Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation in avoiding a patchwork of regulations that companies could exploit.
De Cos warned that without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. As major economies move forward with their own frameworks, often with different approaches and timelines, the stablecoin sector continues to grow, with a current value of $320 billion, according to DeFiLlama.
The sector is dominated by Tether's USDT and Circle Internet's USDC. De Cos noted that the structure of these stablecoins can resemble securities more than traditional currency, and that redemption issues can cause prices to deviate from their intended value of $1.
He also highlighted the potential risks of sudden withdrawals, which could have a ripple effect on the market. 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 make the sector safer 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 has passed the House and is currently before the Senate, where lawmakers are leading the push for its advancement. A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.