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.
This has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global coordination in avoiding 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 warning comes as major economies forge ahead with their own frameworks, often with different timelines and approaches. The stablecoin sector has grown significantly over the past few years, now accounting for $320 billion.
De Cos pointed out that the structure of stablecoins can resemble securities more than cash, and that redemption frictions 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 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 U.S., lawmakers are working to advance the Digital Asset Market Clarity Act, which would establish federal rules for digital asset markets.
The bill is currently before the Senate, where lawmakers are leading the push for its passage. A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.