The impact of Stablecoin regulation on global financial stability

As stablecoins keep growing in the financial world, with a global market cap topping $200 billion in early 2025, we need strong rules to govern them. These digital coins try to keep their value steady by linking to regular money or other assets, making it easier to send money across borders and drive decentralized finance (DeFi). But their quick rise has caught the eye of regulators, who want to cut down on possible risks to financial stability.

Regulators worldwide are increasingly focused on several key aspects of stablecoin regulation, including liquidity, reserves, transparency, and measures to stop illegal activities. The European Union has made big moves in this area. They’ve put in place the Markets in Crypto-Assets (MiCA) rules. These rules set up thorough standards for EU countries to follow. This plan has strict reserve requirements rules and limits on big transactions for major issuers. It could serve as a model for other jurisdictions that want to create their own rules.

In the US, lawmakers are pushing for stablecoin rules as they see the need to create a clear regulatory landscape. The two main proposals show different views on how to bring about regulatory clarity while striking a balance between safety and new ideas. These are the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) and the Stablecoin Transparency and Accountability for a Better Ledger Economy Act (STABLE Act). These plans aim to set up a federal licensing system for stablecoin issuers and make it clear that they’re payment tools, not securities.

Asia is becoming a center for stablecoin breakthroughs, with places like Hong Kong and Singapore creating rules that support this growth. Singapore requires a 1:1 reserve ratio and gives clear rules about guaranteeing redemptions and keeping extra funds. At the same time, Hong Kong’s approach matches MiCA while creating an environment that helps new ideas flourish. These rules not only protect consumers better but also push for responsible growth in this area.While stablecoins have an impact on making money transfers across borders easier and giving financial services to people without bank accounts, we need to tackle some key risks. If reserves aren’t enough, management is poor, or operations fail, it could cause big problems if major issuers run into cash flow issues. As people start to use stablecoins more in their daily lives, gaps in rules could leave users open to scams or mishandling. To protect consumers, it’s crucial to make sure reserves are clear and issuers can pay their debts.

The Financial Stability Board (FSB) works with stakeholders to evaluate how regulatory frameworks in different countries affect stablecoin activities. The FSB uses its thematic peer review to understand how financial stability risks vary across jurisdictions and spot market practices that could threaten stability. This teamwork helps create a consistent global regulatory framework to tackle the challenges stablecoins bring.As rules become clearer, stablecoins will have a bigger influence on innovating payments and money transfers while boosting financial inclusion efforts around the world. Yet, regulators must find the right balance between encouraging new ideas and making sure there are enough safeguards to protect consumers and keep the financial system stable. The rules for stablecoins play a crucial role in where new ideas meet risk control in the world of finance. As different countries try to align their methods more uniformly, it will help explain things for both creators and users, in the end making the global money system stronger. ( The author is CEO of BuyUcoin, India’s second-longest-running digital asset exchange)