The development of global standards for stablecoins has decelerated 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 international rules has stalled, according to recent reports. This slowdown is a concern, as highlighted by Bank for International Settlements General Manager Pablo Hernández de Cos in a statement made in Japan. De Cos emphasized the importance of global coordination to prevent a patchwork of regulations that companies could exploit, potentially leading to regulatory arbitrage.
Without international alignment, firms may relocate to jurisdictions with more lenient oversight. This warning comes as major economies are pushing forward with their own frameworks, often with different approaches and timelines. The stablecoin sector has experienced significant growth over the past few years, now accounting for $320 billion, with Tether's USDT and Circle Internet's USDC comprising the majority of this figure.
De Cos pointed out that the structure of these stablecoins can resemble securities more than cash, noting that redemption issues can cause prices to deviate from their intended value of $1. He also warned that sudden withdrawals could have a ripple effect through 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 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 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, chair of the Banking Committee's digital assets subcommittee, has indicated that a hearing could take place in the second half of April. However, a deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.