The development of global standards for stablecoins has slowed down over the past year, sparking concerns among central bankers that gaps in regulation 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 come to a halt.
This has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the need for global cooperation to avoid a patchwork of rules that companies could exploit. De Cos warned that without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage. As major economies push forward with their own frameworks, often with different approaches and timelines, the stablecoin sector continues to grow, with a current value of $320 billion. The sector's structure can resemble securities more than traditional currency, and redemption issues can cause price fluctuations.
To reduce risk, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities. Policymakers believe such measures could enhance the sector's safety 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 negotiating a compromise on stablecoin yield.
A deal is contingent on resolving several open questions, including DeFi oversight and ethics provisions.