Federal Reserve official calls USDT a “challenge” to financial stability

A senior US Federal Reserve (Fed) official described Tether’s USDT stablecoin as a challenge to financial system stability.

Eric Rosengren – President of the Federal Reserve Bank of Boston

In one presentations On Friday, the President of the Federal Reserve Bank of Boston Eric Rosengren listed USDT as one of the “financial stability challenges” the US Federal Reserve oversees.

Rosengren listed stablecoins as one of the “new troublemakers” in the short-term credit markets.

Three challenges to financial stability | Source: Boston Fed

In one interview he told Yahoo Finance on the same day:

“The reason I talk about USDT and stablecoins is because if you look at their portfolios, it’s essentially the same as the portfolio of an underlying money market fund, but potentially riskier. Tether has a number of assets that have spreads wide open during the pandemic. “

Spread expansion refers to a sell-off in credit markets when the yield spreads between risky assets (corporate bonds) and safe assets (government bonds) widen.

“I think we need to think more about what can disrupt short-term credit markets over time, and stablecoins are certainly a factor,” Rosengren said. “I worry that the stablecoin market is not very regulated right now as it is growing and becoming a more important sector of our economy. So we have to seriously consider what happens when people use these types of tools quickly. “

A longtime Bitcoin advocate and a Wall Street veteran, Caitlin Long also has notable remarks.

“What’s interesting is that Fed Governor Lael Brainard and then Chairman Jerome Powell started talking about stablecoins. But now Rosengren only calls USDT. This increases attention. “

“The Fed took a clear step with the speech. In the past, statements on the topic were made cautious in their statements. In general, these are statements about stablecoins. But today the Fed picked up. Seldom have they been as straightforward as they are now. “

Long added that Bitcoiner, concerned that USDT is being overvalued, shouldn’t fret on Messenger.

“I have both defended Tether as a disruptive technology and claimed that disclosing its reserves raises more questions than answers,” she said, referring to the company’s USDT collateral analysis announced in May.

That analysis said that almost half of the reserves were contained in commercial papers, but the issuer or rating of the debt was not disclosed, raising doubts about the liquidity and solvency of the asset.

Tether Asset Analysis | Source: Boston Fed

Recently, USDT has played an important role in increasing the global crypto market cap to $ 1 trillion. Traders use it to quickly move the dollar value between exchanges to take advantage of arbitrage opportunities.

Stablecoins should be traded at eye level with fiat currencies such as the US dollar and can theoretically be exchanged 1: 1 for cash from issuers. But questions about Tether’s backing assets have been around for years in the crypto market and are at the center of an investigation by the New York Attorney General’s office that the company settled earlier this year.

Despite lingering doubts and suspicions about Tether’s finances, USDT trades at $ 1 for most of its history.

USDT / USD Price Chart | Source: Coinmarketcap

USDT is by far the largest stablecoin by market cap, despite the advent of competitors with less controversial histories.

USDT (green) compared to other stablecoins | Source: Messari stablecoin index

As Powell said in the same last month speech, a series of discussion papers outlining the Fed’s thinking on digital payments, including the risks and benefits of central bank digital currency (CBDC), will be released this summer. In it he briefly mentioned stablecoins without giving any details.

Minh Anh

According to Coindesk

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