Bailey: Global stablecoin rules will ‘wrestle’ with US

Bank of England Governor Andrew Bailey warned on Friday that international regulators will have to “wrestle” with the U.S. over global rules for dollar-backed stablecoins, pointing to risks around convertibility and financial stability.

Bailey, who also chairs the Financial Stability Board, said stablecoins will only work as part of global payment systems if countries adopt common international standards. “If we want stablecoins to be part of the architecture of payments globally … they’re only going to work if we have international standards,” he argued.

He noted some stablecoins may only be converted into cash through private crypto exchanges, which could limit their usability in stressed markets and create broader stability risks. “Frankly, that, I think, is going to be a coming wrestle with the U.S. administration,” he added.

The stablecoin market is valued at more than $317 billion and is dominated by tokens pegged to the U.S. dollar. Many of the largest tokens use U.S. Treasury bills and dollar deposits as backing assets.

Bailey warned that if dollar-backed stablecoins become widely used for cross-border payments, tokens that are hard to convert could concentrate in jurisdictions with strict convertibility rules, sending redemption pressure toward well-regulated markets. “We know what would happen if there was a run on a stablecoin; they’d all turn up here,” he warned.

U.S. authorities have taken steps to attract crypto firms, including a recent legislative framework that created a regulatory structure for stablecoin issuers. Other jurisdictions are seeking tighter oversight, viewing some stablecoins as a less-regulated alternative to bank deposits that could pose systemic risks.

U.S. banking groups have pushed Congress to limit how stablecoins are used on third-party platforms, urging a ban on crypto exchanges offering yield on stablecoin balances. Negotiations between crypto firms and banks did not reach agreement. The latest version of a Senate bill would bar interest-style rewards on idle stablecoin balances while allowing other customer rewards. The Senate Banking Committee has scheduled a markup session on Thursday.

The Financial Stability Board is focused on coordinating cross-border rules to avoid gaps from divergent national frameworks. Regulators are discussing requirements for clear redemption mechanisms, robust backing, reserve transparency, custody arrangements and rules governing intermediaries such as exchanges.

Stablecoins are digital tokens designed to hold a stable value against a fiat currency and are used for trading and payments. Regulatory concerns include the quality of reserves, convertibility in stressed conditions, governance and the risk that runs on stablecoins could spill over into the broader financial system.