The development of international standards for stablecoins has experienced significant slowdown over the past year, prompting 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 global rules has stalled, according to recent reports. This development has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation to avoid a fragmented regulatory landscape that companies could exploit. De Cos warned that without international coordination, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage.
His warning comes as major economies are advancing their own regulatory frameworks, often with different timelines and approaches. The stablecoin sector has grown substantially over the past few years, now valued at $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 traditional currency, highlighting the potential for redemption frictions to drive prices away from their intended value of $1. Furthermore, sudden withdrawals could have a ripple effect through the 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 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 aims to establish federal rules for digital asset markets. The bill, which passed the House last year, is currently before the Senate, where committee chairs are leading the effort to move it forward. While negotiations on stablecoin yield have made progress, a deal remains contingent on resolving several outstanding issues, including oversight of decentralized finance and ethics provisions.