The development of global standards for stablecoins has experienced a slowdown 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 recent reports. This slowdown is a concern, as stated by Bank for International Settlements General Manager Pablo Hernández de Cos in a recent address in Japan.
De Cos emphasized the importance of global coordination in avoiding a patchwork of rules that companies could exploit, leading to regulatory arbitrage. Without international alignment, firms may relocate to jurisdictions with more lenient oversight. This warning comes as major economies are moving forward with their own frameworks, often with different timelines and approaches.
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 having a ripple effect 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 enhance the safety of the sector 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, which passed the House last year, is currently before the Senate, where committee chairs are leading the effort to move it forward.
A compromise on stablecoin yield has been negotiated, which could pave the way for a markup, while a hearing is potentially scheduled for the second half of April. However, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.