By Leika Kihara
TOKYO, April 20 (Reuters) – The Bank for International Settlements’ chief has made a renewed call for international cooperation on how stablecoins are used, saying this is vital to prevent severe market fragmentation.
The central bankers’ central bank, as the BIS is known, has long raised concerns about stablecoins – a type of cryptocurrency usually pegged 1:1 to the U.S. dollar.
Speaking in Japan, BIS General Manager Pablo Hernandez de Cos said the potential of stablecoins to undermine monetary and fiscal policy, cause financial market stress and hamper the fight against illicit financing, meant global coordination was of “critical importance”.
Without it, “divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage,” de Cos said, referring to when firms seek out the least onerous rules.
The comments come as the United States and other leading economies race to build regulatory frameworks for stablecoins and catch up with the likes of Abu Dhabi and Singapore that already have them in place.
Bank of England Governor Andrew Bailey, who chairs global financial watchdog the Financial Stability Board, also said last week that progress on international standards for stablecoins had slowed over the last year.
De Cos reiterated that “runs” on stablecoins could trigger market stress although that risk could be “much reduced” if stablecoin issuers had access to deposit insurance-type arrangements or central bank lending facilities.
Growing stablecoin use could also accelerate the “dollarisation” of developing countries’ economies and make it easier to evade capital controls and “thus allow for both greater inflows (surges) in good times and outflows (capital flight) in times of stress,” de Cos said.
SECURTIES OR MONEY?
Tether and Circle – the issuers of the world’s two largest stablecoins, which account for roughly 85% of the $315 billion in circulation globally – also have features that make them resemble “securities rather than money,” he said, in particular, imposing “redemption frictions” that lead to frequent deviations from par.
“In this respect, they currently operate more like exchange-traded funds than like money,” he added.
Circle declined to comment while Tether did not immediately respond to a request for comment.
If regulators classify stablecoins as securities then their issuers would face tougher disclosure and compliance rules, analysts say. Alternatively, regulating them as money – as the crypto industry has lobbied for – could fuel an explosion of their use for mainstream payments.
In the U.S., where Donald Trump has been championing crypto assets, the Securities and Exchange Commission recently said it would not treat stablecoins as securities under its Genius Act.
De Cos also gave his view on the current debate around whether stablecoins should be allowed to pay interest in the same way that traditional bank accounts do.
“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 BIS head said.
“And if prohibitions on paying interest on stablecoins can be enforced.”
(Reporting by Leika Kihara. Additional reporting by Phoebe Sears and Elizabeth Howcroft; Writing by Marc Jones. Editing by Lincoln Feast and Jane Merriman)
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