Efforts to establish global standards for stablecoins have lost momentum over the past year, sparking concerns among central bankers that regulatory gaps could lead to market fragmentation and increased risk. According to recent reports, Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, has stated that progress on international rules has stalled. This development has raised concerns, with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos emphasizing the need for cooperation in Japan on Monday. De Cos stressed that global coordination is essential to prevent a patchwork of regulations that companies could exploit, leading to regulatory arbitrage.
Without international alignment, firms may relocate to jurisdictions with less stringent oversight. This warning comes as major economies proceed with their own frameworks, often with different timelines and approaches.
The stablecoin sector has experienced significant growth over the past few years, with a current value of $320 billion, according to DeFiLlama. Tether's USDT and Circle Internet's USDC account for the majority of this figure. De Cos noted that the structure of these stablecoins can resemble securities more than traditional currency, and that redemption issues can cause price fluctuations.
He also highlighted the risk 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.
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 passed the House last year and is currently before the Senate, where Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman are leading the effort.
Senators Thom Tillis and Angela Alsobrooks have negotiated a compromise on stablecoin yield, which could pave the way for a markup, while Senator Cynthia Lummis, who chairs the Banking Committee's digital assets subcommittee, has indicated that a hearing may take place in the second half of April. A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.