The development of global standards for stablecoins has slowed down over the past year, sparking concerns among central bankers about potential market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international regulations has stalled. Bank for International Settlements General Manager Pablo Hernández de Cos expressed concern about this slowdown, 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 more lenient oversight, a practice known as regulatory arbitrage. As major economies establish their own frameworks, often with varying timelines and approaches, the stablecoin sector continues to grow, now valued at $320 billion.
The two largest stablecoins, Tether's USDT and Circle Internet's USDC, dominate this market. De Cos pointed out that their structure can resemble securities more than traditional currency, and redemption issues can cause price fluctuations. He also warned about the potential for sudden withdrawals to 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-like arrangements.
Policymakers believe these measures can enhance the sector's safety while preserving its role in digital payments. In the United States, lawmakers are working to pass the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets.
The bill is currently before the Senate, where committee chairmen are leading the effort to advance it. While a compromise on stablecoin yield has been negotiated, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.