BIS Urges Global Cooperation on Stablecoin Rules to Prevent Harmful Regulatory Arbitrage

The Bank for International Settlements (BIS) has urged global cooperation on stablecoin rules, warning that regulatory fragmentation could create “harmful regulatory arbitrage” and “severe market fragmentation.”

In a speech at a Bank of Japan seminar in Tokyo, BIS General Manager Pablo Hernández de Cos said stablecoins could have “material consequences” for financial stability and monetary policy if they scale to rival traditional forms of money.

Bitcoin World

Hernández de Cos argued that current stablecoin arrangements “fall short of what would be required for a broadly used payment instrument,” despite advantages in cross-border transfers and smart contract integration.

He singled out the largest stablecoin tokens, including USDT and USDC, saying their fee structures, redemption conditions, and secondary market price deviations make them behave more like investment products than cash.

The BIS also warned that redemption frictions and run-like dynamics could ripple through markets, with rapid outflows forcing reserve sales into already strained markets or pushing funding pressure onto banks holding those deposits.

In parallel, CoinDesk reported that “progress on international rules has stalled,” citing Reuters and noting that BIS and the Financial Stability Board warned that fragmented rules could amplify market risks and encourage regulatory arbitrage.

Across multiple reports, the BIS framed stablecoins as assets whose mechanics resemble securities and exchange-traded funds rather than cash-like money.

CoinMarketCap described Hernández de Cos’s argument that large stablecoins are closer to exchange-traded funds in practice because “redemption conditions” and “secondary market price deviations” can move prices away from par.

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The Block similarly reported that Hernández de Cos said stablecoins function more like exchange-traded funds than money due to “redemption frictions” and price deviations from par, warning that divergent national rules risk fragmenting the “$300 billion stablecoin market.”

CoinDesk added that Hernández de Cos said their structure can resemble securities more than cash, noting that “redemption frictions can push prices away from their intended $1 value.”

The BIS also tied those frictions to broader financial stability concerns, warning that sudden withdrawals could ripple through markets.

In the same thread, CoinMarketCap said issuers hold short-term government debt and bank deposits as reserve assets, so rapid outflows could force reserve sales into strained markets or push funding pressure onto banks.

The BIS warnings extended beyond market pricing mechanics to the possibility of stablecoin runs and policy disruption.

CoinMarketCap reported that Hernández de Cos warned that stablecoins could carry “material consequences” for financial stability and monetary policy if they scale to rival traditional forms of money.

It said large redemptions could generate run and contagion risk, because reserve assets held by issuers—short-term government debt and bank deposits—could be sold quickly during stress.

CoinMarketCap also described a structural oversight gap, saying the BIS flagged “public, permissionless blockchains and unhosted wallets” as a gap in oversight, with a “significant portion of stablecoin activity” sitting outside standard Anti-Money Laundering and counter-terrorism financing controls.

The Block added that de Cos warned stablecoins could undermine monetary and fiscal policy, trigger financial market stress, and hamper efforts to fight illicit finance.

CryptoRank’s account of the BIS speech similarly warned that the world cannot keep handling stablecoin rules country by country because it puts cross-border markets “in massive danger,” and it described how redemptions could force reserve asset dumping or drawdowns on bank deposits that spread stress to banks and other parts of the system.

While the BIS pressed for coordination, the sources show regulators and lawmakers moving at different speeds and with different approaches.

CoinDesk said the U.S. is advancing the Digital Asset Market Clarity Act, noting that the bill passed the House last year and is now before the Senate, where Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman are leading the push.

CoinDesk

CoinDesk also reported that Senators Thom Tillis and Angela Alsobrooks negotiated a compromise on stablecoin yield that could clear the way for a markup, while Senator Cynthia Lummis, who chairs the Banking Committee's digital assets subcommittee, has said a hearing could come in the second half of April.

CoinMarketCap described additional European and UK moves, including the Bank of France’s first deputy governor urging the European Union to go beyond Markets in Crypto-Assets Regulation by restricting non-euro stablecoins in everyday payments and closing arbitrage gaps.

It also said the European Central Bank separately noted that euro stablecoins and tokenized money market funds carry liquidity transformation risk and run exposure, though under different regulatory frameworks.

In the United Kingdom, CoinMarketCap reported that members of the House of Lords questioned Coinbase in March over whether stablecoins could drain commercial bank deposits and enable crime, as the government works toward a dedicated regulatory regime for fiat-backed tokens.

The BIS warnings were delivered as stablecoin market size and concentration drew attention from multiple outlets.

“Global stablecoin rulemaking slows, prompting BIS to urge cooperation to avoid fragmentation risks To mitigate risks like sudden withdrawals, policymakers are debating safeguards such as limiting interest payments and offering issuers access to central bank backstops”

CoinDesk

CoinDesk said the stablecoin sector has expanded over the last few years and now accounts for $320 billion according to DeFiLlama, with Tether's USDT and Circle Internet's USDC making up most of that figure.

CoinMarketCap

CoinMarketCap reported that the speech arrived as stablecoin market caps and transaction volumes have grown, and it described the largest stablecoin tokens’ dominance in terms of fee structures and redemption conditions.

The Block put the stablecoin market at “$300 billion” and said Tether and Circle account for roughly 85% of supply, while also citing that Tether’s USDT leads with a market cap of nearly $186 billion and Circle’s USDC ranks second at approximately $78.8 billion.

CoinDesk also described proposals to reduce risk, including limiting interest payments and giving issuers access to central bank lending facilities or deposit-insurance-type arrangements.

Looking ahead, CoinDesk said the U.S. legislative path for the Digital Asset Market Clarity Act depends on resolving open questions including DeFi oversight and ethics provisions, while also noting that the stablecoin yield compromise could clear the way for a markup.