The development of global standards for stablecoins has experienced a significant slowdown over the past year, sparking concerns among central bankers that the lack of 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 prevent a patchwork of regulations that companies could exploit. Without international alignment, firms may engage in regulatory arbitrage by shifting operations to jurisdictions with less stringent oversight.
Major economies are pushing forward with their own frameworks, often with different timelines and approaches. The stablecoin sector has grown substantially 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. According to de Cos, the structure of these stablecoins can resemble securities more than traditional currency, and redemption issues can cause prices to deviate from their intended value of $1.
He also warned that sudden withdrawals could have a ripple effect through markets. To reduce risk, 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 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 committee chairmen are leading the effort to push it forward. 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.