The development of global standards for stablecoins has experienced a slowdown over the past year, sparking concerns among central bankers that a lack of oversight 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 avoid a patchwork of regulations that companies could exploit. Without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage.
Major economies are moving forward with their own frameworks, often with different approaches and timelines. The stablecoin sector has grown significantly, now valued at $320 billion, with Tether's USDT and Circle Internet's USDC dominating the market. De Cos highlighted that the structure of stablecoins can resemble securities more than traditional currency, and 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 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 believe these 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 would establish federal rules for digital asset markets.
The bill is currently before the Senate, with lawmakers negotiating a compromise on stablecoin yield that could pave the way for a markup. A deal, however, remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.