The development of global standards for stablecoins has decelerated over the past year, sparking concerns among central bankers that inadequate 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 need for global cooperation to avoid a patchwork of regulations that companies could exploit.
De Cos warned that without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. As major economies move forward with their own frameworks, often with different approaches and timelines, the stablecoin sector has grown significantly over the past few years, now accounting for $320 billion.
The sector's structure can resemble securities more than traditional currency, and sudden withdrawals could have far-reaching consequences. Proposals to reduce risk include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities. 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 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 that could pave the way for a markup.