The development of global standards for stablecoins has experienced a significant slowdown 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, recently stated that progress on international rules has stalled. This has raised concerns, with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation in Japan.
De Cos warned that without international alignment, companies may engage in regulatory arbitrage, shifting operations to jurisdictions with less stringent oversight. Major economies are currently pushing forward with their own frameworks, often with different approaches and timelines. 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 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 on 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 US, lawmakers are working to advance the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets. The bill, currently before the Senate, has sparked negotiations among senators, with some pushing for a compromise on stablecoin yield to pave the way for a markup.
A deal, however, remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.