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, 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 cooperation to prevent a patchwork of regulations that companies could exploit. According to de Cos, without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. As major economies move forward with their own frameworks, often with different timelines and approaches, the stablecoin sector, which has grown significantly over the past few years to $320 billion, remains a key area of focus.
The sector is dominated by Tether's USDT and Circle Internet's USDC, and de Cos has noted that their structure can be more similar to securities than cash, with redemption frictions potentially causing prices to deviate from their intended value of $1. De Cos also warned that sudden withdrawals could have a ripple effect on markets. To reduce 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 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.