The development of global standards for stablecoins has experienced a slowdown over the past year, prompting 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 rules has stalled, according to recent reports. This development has raised concerns, with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos emphasizing the need for global cooperation to avoid a fragmented regulatory landscape that companies could exploit. De Cos warned that without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage.
His warning comes as major economies push forward with their own regulatory 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.
De Cos noted that the structure of stablecoins can resemble securities more than traditional currency, and that redemption issues can cause price fluctuations. He also highlighted the potential risks of sudden withdrawals, which could have far-reaching consequences for 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 enhance the safety of the sector while preserving its role in digital payments.
In the United States, lawmakers are working to advance the Digital Asset Market Clarity Act, which would establish federal rules for digital asset markets. The bill, which passed the House last year, is currently before the Senate, where committee chairmen are leading the effort to move it forward. While a compromise on stablecoin yield has been negotiated, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.