US Fed official calls Tether a ‘challenge’ to financial stability

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A senior US Federal Reserve official called Tether’s USDT stablecoin a risk to the stability of the financial system.

In a slide presentation on Friday, Eric Rosengren, chairman of the Federal Reserve Bank of Boston, ranked Tether among the “financial stability challenges” that the US central bank is monitoring.

Rosengren included stablecoin among what he called the “new disruptors” of short-term credit markets.

In an interview with Yahoo Finance the same day, he clarified.

“The reason I mentioned Tether and Stables is that if you look at their portfolio, it basically looks like a portfolio of a blue chip money market fund but maybe more risky,” he said. -he declares. Tether “has a number of assets which, during the pandemic, spread quite widely on these assets.” Spread widening refers to a sell-off in credit markets, when the yield difference increases between a risky asset such as a corporate bond and one perceived as safe like a treasury bill.

“I think we need to think more broadly about what might disrupt short-term credit markets over time, and stablecoins are definitely a part of it,” Rosengren said. “I am concerned that in the stable coin market which is currently, pretty much unregulated as it grows and becomes a bigger sector of our economy, that we need to take seriously what happens when people are very fleeing. quickly this type of instrument. “

Read more: Strike Gradually Removes USDT From Bitcoin-Based Remittances To El Salvador, CEO Says

Caitlin Long, Wall Street veteran and longtime Bitcoin supporter, found the remarks salient.

“What’s interesting is [Fed governor Lael] Brainard then [chairman Jerome] Powell started talking about “stablecoins”. But now Rosengren speaks of “tie” by name. It’s an escalation, ”said Long, founder and CEO of Avanti Financial in Wyoming.

“The Fed is so practiced,… to ‘Fedspeak’ – statements so carefully constructed so that multiple sides of an issue can see their side in what the Fed has said,” she said. “It was essentially the [case with] previous statements on stable coins. But today the Fed has escalated. Rarely are they as explicit as they are today.

Long added that bitcoiners who consider concerns about Tether to be overblown shouldn’t “shoot the messenger.”

“I have both championed Tether as a breakthrough technology while saying that its reserve disclosure raised more questions than it answered,” she said, referring to the breakdown of the collateral. of the USDT released in May.

Read more: Tether’s reserve breakdown shows 49% token backed by commercial paper

This breakdown showed that almost half of the reserves are in commercial paper, but did not specify the issuers or the ratings of these debts, leaving the market to guess the liquidity and solvency of the assets. Rosengren included the composition in another slide of his presentation at a virtual event hosted by the Philadelphia Fed.

Tether did not immediately respond to a request for comment on Friday evening.

The USDT plays a key role in plumbing the global $ 1,000 billion cryptocurrency market. Traders use it, and to a lesser extent other stablecoins, to quickly move the dollar’s value between exchanges to take advantage of arbitrage opportunities.

Read more: A bridge called Tether

Stablecoins are designed to trade at par with fiat currencies such as the dollar, and are theoretically redeemable 1 to 1 against money from issuers. But questions about Tether’s support have been looming over the crypto market for years and have been the subject of an investigation by the New York attorney general’s office which the company has settled this year.

Despite the long-simmering doubts and conjectures about Tether’s finances, the USDT has traded at $ 1 for most of its history, as it did on Saturday morning UTC.

The USDT also remains by far the largest stablecoin by market cap despite the emergence of competitors with less controversial histories.

Read more: Millions of cryptos cross the Russian-Chinese border daily. There Tether is king

A discussion paper outlining the Fed’s thinking on digital payments, including the risks and rewards of central bank digital currencies (CBDCs), will be released this summer, Powell said last month in the same speech where he briefly spoke. refers to stable coins without naming them. .

UPDATE (June 25, 00:35 UTC): Adds information about Tether’s role and history in the market.

UPDATE (June 25, 02:57 UTC): Adds more background and related links.


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