BIS Head Urges Global Cooperation on Stablecoin Rules

The Bank for International Settlements (BIS) has issued a fresh call for global cooperation on the regulation of stablecoins to prevent significant market fragmentation. During a visit to Japan, BIS General Manager Pablo Hernandez de Cos stated that international coordination is essential to mitigate risks to monetary policy and financial stability. The BIS, often referred to as the central bank for central banks, has expressed ongoing concerns regarding stablecoins, which are digital assets typically pegged to the value of the U.S. dollar. De Cos warned that without a unified approach, divergent rules could lead to regulatory arbitrage, where firms migrate to jurisdictions with less stringent oversight. > "Without it, divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage." Currently, the United States and other major economies are racing to develop comprehensive regulatory frameworks. These efforts are intended to align with jurisdictions such as Singapore and Abu Dhabi, which have already established clear rules for digital asset issuers. The BIS head noted that major stablecoin issuers, including Tether and CIRCLE INTERNET GROUP INC, currently operate in a manner that resembles securities or exchange-traded funds rather than money. This is largely due to redemption frictions that can cause the value of these tokens to deviate from their intended par value. To reduce the risk of market stress caused by potential runs on stablecoins, de Cos suggested that issuers might eventually need access to central bank lending facilities or deposit insurance-type arrangements. He also touched upon the debate regarding whether stablecoins should pay interest, noting that prohibiting such payments could help prevent a massive shift of funds away from traditional bank deposits. > "Shifts from bank deposits to stablecoins may also be less pronounced if stablecoin holdings remain unremunerated and the opportunity cost of holding them is high, such as during periods of high interest rates." The remarks follow recent warnings from Bank of England Governor Andrew Bailey, who noted that international progress on establishing standards for stablecoins has slowed over the past year.