The development of global standards for stablecoins has decelerated over the past year, sparking concerns among central bankers that regulatory gaps 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 slowdown has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation to prevent a patchwork of regulations 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. As major economies push forward with their own frameworks, often with different approaches and timelines, the stablecoin sector has grown significantly over the past few years, now valued at $320 billion. The sector is dominated by Tether's USDT and Circle Internet's USDC.

De Cos pointed out that the structure of stablecoins can resemble securities more than traditional cash, 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 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 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 passage. While a deal is contingent on resolving several open questions, including DeFi oversight and ethics provisions, a hearing could take place in the second half of April.