The Bank for International Settlements (BIS) has made a renewed call for international cooperation on stablecoin regulation, with its General Manager Pablo Hernandez de Cos describing it as vital to preventing severe market fragmentation. Speaking in Japan, Mr de Cos emphasised the need for a unified global approach to these digital assets. The BIS, known as the central bankers’ central bank, works to foster international monetary and financial cooperation. Stablecoins are a type of cryptocurrency typically pegged one-to-one to a fiat currency, most commonly the U.S. dollar.
Mr de Cos highlighted stablecoins’ potential to undermine monetary and fiscal policy, cause financial market stress, and hamper the fight against illicit financing. He warned that without global coordination, “divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage.” This urgency comes as leading economies like the United States race to build regulatory frameworks, while others such as Abu Dhabi and Singapore already have them. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, also noted recently that progress on international stablecoin standards had slowed over the past year.
The BIS head reiterated that “runs” on stablecoins could trigger market stress, though this risk could be “much reduced” with access to deposit insurance-type arrangements or central bank lending facilities. He also commented that Tether and Circle, issuers of the world’s two largest stablecoins, currently exhibit features resembling “securities rather than money.” This observation stems from “redemption frictions” leading to frequent deviations from par, making them operate “more like exchange-traded funds than like money.” Furthermore, Mr de Cos weighed in on the debate around stablecoins paying interest, suggesting that prohibiting such payments could limit shifts from traditional bank deposits, especially during high interest rate periods, if prohibitions can be enforced.
