The development of global standards for stablecoins has experienced a slowdown 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. This has raised concerns with Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global coordination in avoiding a patchwork of regulations that companies could exploit by shifting operations to jurisdictions with less stringent oversight. The warning comes as major economies are establishing their own frameworks, often with differing timelines and approaches.
The stablecoin sector has grown significantly, now accounting for $320 billion, with Tether's USDT and Circle Internet's USDC making up the majority. According to de Cos, the structure of these stablecoins can resemble securities more than traditional currency, with redemption issues potentially causing prices to deviate from their intended value of $1.
He also highlighted the risk of sudden withdrawals rippling through markets. To mitigate these risks, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities. Policymakers believe such measures could enhance the safety of the sector 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, with lawmakers negotiating a compromise on stablecoin yield that could pave the way for further progress.