BIS Urges Global Cooperation for Stablecoin Rules to Avoid “Severe” Fragmentation

Pablo Hernández de Cos, general manager at the Bank for International Settlements, has called for greater cooperation among global regulators to avoid creating divergent rules around stablecoins, which he said would lead to “harmful regulatory arbitrage” and severe market fragmentation.

In a speech called Stablecoins: Framing the Debate, Hernandez de Cos argued that stablecoins presents significant opportunities, including the possibility of tokenising assets, programmability and atomic settlement, while “significantly” enhancing cross-border payments and providing convenient access to the US dollar and other foreign currencies that act as stores of value.

However, he also emphasised the challenges that come with this new technology, noting that they pose major macroeconomic headaches, including their potential effects on credit supply, financial stability and fiscal policy. “Most importantly, stablecoins raise serious risks for financial integrity and can facilitate regulatory circumvention, increasing dollarisation risks for EMDEs,” he noted.

Proposing potential solutions for these challenges, Hernandez de Cos argued two dimensions need addressing. Firstly, exploring technological solutions and regulatory approaches to mitigate the risks of currency stablecoins arrangements is crucial. He posited that appropriate policy measures, such as ensuring redemption at par through robust regulation and supervision, can reduce run risks and enhance resilience.

Secondly, he said efforts should focus on embedding and integrating the technological advancements provided by stablecoins into the current two-tier financial system, such as the use of tokenised deposits on private, permissioned platforms, with an emphasis on sound settlement, enhanced integrity and robust interoperability across networks.

He explained that the BIS has laid out an ambitious vision for a “unified ledger” and it’s working hard to make this a reality, for example with Project Agora in Japan, where the central bank is collaborating with the public sector to explore the application of tokenisation to improve cross-border payments. The anchor for this vision is central bank money, which helps to mitigate the fragmentation and integrity risks that would arise in a purely decentralised monetary system.

“As regulatory approaches are refined, I also want to emphasise the critical importance of international cooperation,” Hernandez de Cos said. “Without it, divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage.”