Global stablecoin rulemaking slows, prompting BIS to urge cooperation to avoid fragmentation risks

To mitigate risks like sudden withdrawals, policymakers are debating safeguards such as limiting interest payments and offering issuers access to central bank backstops.

What to know:

• Global progress on stablecoin standards has slowed, prompting the BIS and Financial Stability Board to warn that fragmented rules could amplify market risks and encourage regulatory arbitrage.
• To mitigate risks like sudden withdrawals, policymakers are debating safeguards such as limiting interest payments and offering issuers access to central bank backstops.
• The U.S. is advancing the Digital Asset Market Clarity Act, with a compromise on stablecoin yield potentially clearing the way for a bill markup.

Work on global standards for stablecoins has slowed over the past year, raising concern among central bankers that gaps in oversight could split markets and amplify risk.

Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, said progress on international rules has stalled, Reuters reported last week. That's a concern, Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos said Monday in Japan.

Global coordination is critical to avoid a patchwork of rules that firms could exploit, de Cos said, according to Reuters. Without international alignment, companies may shift operations to jurisdictions with lighter oversight, a practice known as regulatory arbitrage.

The warning comes as major economies push ahead with their own frameworks, often on different timelines and with different approaches.

The stablecoin sector has expanded over the last few years, and now accounts for $320 billion according to DeFiLlama. Tether's USDT and Circle Internet's (CRCL) USDC make up most of that figure. De Cos said their structure can resemble securities more than cash, noting that redemption frictions can push prices away from their intended $1 value.

He also said that sudden withdrawals could ripple through markets. Proposals to reduce risk include limiting interest payments on stablecoins and giving issuers access to central bank lending facilities or deposit-insurance-type arrangements.

Policymakers argue such measures could make the sector safer while preserving its role in digital payments.

In the U.S., lawmakers are working to advance the Digital Asset Market Clarity Act, which would set federal rules for digital asset markets.

The bill passed the House last year and is now before the Senate, where Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman are leading the push. Senators Thom Tillis and Angela Alsobrooks have negotiated a compromise on stablecoin yield that could clear the way for a markup, while Senator Cynthia Lummis, who chairs the Banking Committee's digital assets subcommittee, has said a hearing could come in the second half of April.

A deal remains contingent on resolving several open questions, including DeFi oversight and ethics provisions.

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