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. According to Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, progress on international rules has come to a standstill.
This slowdown has raised concerns, with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos emphasizing the need for global cooperation to avoid a patchwork of rules that could be exploited by firms. De Cos warned that without international alignment, companies might 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, currently valued at $320 billion. The sector's expansion has led to concerns about its structure, which can resemble securities more than cash, and the potential for redemption frictions to push prices away from their intended value.
De Cos 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 or deposit-insurance-type arrangements. Policymakers believe such measures could enhance the sector's safety 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 has passed the House and is currently before the Senate, where lawmakers are leading the push for its advancement.
A compromise on stablecoin yield has been negotiated, which could pave the way for a markup, and a hearing is expected to take place in the second half of April. However, a deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.