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. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international rules has stalled, according to Reuters. This has raised concerns for Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation to avoid a patchwork of regulations that companies could exploit. Without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage.
The warning comes as major economies push 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, with Tether's USDT and Circle Internet's USDC making up the majority of this figure. De Cos noted that the structure of stablecoins can resemble securities more than cash, with redemption frictions potentially causing prices to deviate from their intended value of $1.
He also highlighted the risk of sudden withdrawals rippling through markets. To reduce 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 argue that such 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 now before the Senate, where committee chairs are leading the effort to push it forward.
A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.