International Cooperation on Stablecoins

The governor of the Bank for International Settlements (BIS) has reiterated the need for global collaboration regarding stablecoins, emphasizing that it’s crucial to avoid significant market fragmentation.

The BIS has expressed concern for a while about stablecoins, which are cryptocurrencies typically tied to the U.S. dollar.

During a speech in Japan, BIS general manager Pablo Hernández de Cos indicated that global coordination is vital. He warned that stablecoins could potentially disrupt monetary and fiscal policies, create volatility in financial markets, and complicate efforts to combat illicit financing.

He cautioned that without unified regulations across different jurisdictions, there could be detrimental market fragmentation or allow companies to exploit less stringent regulations.

The remarks come at a time when the U.S. and other major economies are developing regulatory frameworks for stablecoins. They are trying to keep pace with countries like Abu Dhabi and Singapore, which have already enacted regulations.

Andrew Bailey, Governor of the Bank of England and chair of the Financial Stability Board, noted recently that progress on international standards for stablecoins has been sluggish since the previous year.

De Cos also pointed out that risks from potential “runs” on stablecoins could be significantly mitigated if issuers had access to deposit insurance-like protections or lending facilities from central banks.

He mentioned that the largest stablecoin providers, Tether and Circle—holding approximately 85% of the $315 billion in circulation—share traits more similar to “securities than money.” This is especially true due to the “redemption friction” they impose, which can lead to fluctuations from the actual value.

“In this regard, they’re now functioning more like exchange-traded funds than traditional money,” he added.

He also weighed in on the ongoing discussion about whether stablecoins should be permitted to pay interest akin to traditional bank accounts.

“The transition from bank deposits to stablecoins could be less significant if stablecoin holdings don’t earn interest, especially during high interest rate periods,” the BIS chief stated. “And, if enforcing a ban on interest payments for stablecoins proves feasible.”