The development of global standards for stablecoins has slowed down 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, stated that progress on international regulations has stalled. The General Manager of the Bank for International Settlements, Pablo Hernández de Cos, expressed concerns about the lack of progress, emphasizing the need for global coordination to prevent a patchwork of rules that companies could exploit.
Without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage. The warning comes as major economies are implementing their own 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 be more similar to securities than cash, and that redemption frictions can cause prices to deviate from their intended value of $1. He also highlighted the risk of sudden withdrawals, which could have a ripple effect on markets.
To reduce 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 US, lawmakers are working to advance the Digital Asset Market Clarity Act, which would 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. A deal is contingent on resolving several open questions, including DeFi oversight and ethics provisions.