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, stated that progress on international regulations has stalled.
This has raised concerns with Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation to prevent a patchwork of rules that companies could exploit. Without international alignment, firms may relocate to jurisdictions with more lenient 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 of this figure. De Cos noted that the structure of these stablecoins can resemble securities more than cash, and that redemption issues can cause prices to deviate from their intended value of $1.
He also warned that sudden withdrawals could have a ripple effect on markets. To reduce risk, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities.
Policymakers believe these 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 aims to establish federal rules for digital asset markets. The bill has passed the House and is currently before the Senate, where lawmakers are negotiating a compromise on stablecoin yield and other issues.