Eric Rosengren placed the stablecoin amongst what he termed new disruptors to short-term credit markets. A senior U.S. Federal Reserve official announced Tether’s USDT stablecoin a risk to the stability of the financial system. In a slide presentation Friday, Eric Rosengren, listed Tether between the “financial stability challenges” the U.S. central bank is seeing. He is the president of the Federal Reserve Bank of Boston.
“The reason I talked about Tether and stablecoins is if you look at their portfolio. It basically looks like a portfolio of a prime money market fund but maybe riskier,” he mentioned. Tether “has a number of assets that, during the pandemic, the spread got quite wide on those assets.”
Opened expanding refers to a selloff in the credit markets. When the difference in efficiency grows among a risky asset such as a corporate bond and one recognizing as safe like a Treasury bond.
“I do think we need to think more broadly about what could disrupt short term credit markets over time, and certainly stablecoins are one element,” Rosengren said.
“I do worry that the stablecoin market that is currently, pretty much unregulated as it grows and becomes a more important sector of our economy. That we need to take seriously what happens when people run from these type of instruments very quickly.”
Wall Street veteran and longtime Bitcoin supporter Caitlin Long found the mentions salient.
“What’s interesting is (Fed governor Lael) Brainard and then (chairman Jerome) Powell started talking ‘stablecoins.’ But now Rosengren talks ‘tether’ by name. That’s an escalation,” told Long, the founder and CEO of Avanti Financial in Wyoming.
“The Fed is so practiced, … at ‘Fedspeak’ , such carefully constructed statements so that multiple sides of an issue can see their side in what the Fed said,” she said. “That was basically the previous statements about stablecoins. But today the Fed escalated. Rarely are they so explicit like they were today.”
Long also said that bitcoiners who think about some concerns about Tether overblown should not “shoot the messenger.”
“I’ve both defended Tether as breakthrough technology while also calling out that its reserve disclosure opened more questions than it answered,”. She said that by referring to the company’s failure of the guarantee behind USDT, released in May.
USDT has a key role in the measuring of the $1 trillion global cryptocurrency market. Traders use it, and to a lower degree other stablecoins. In order to move dollar value fast among exchanges in order to take advantage of arbitrage opportunities.
Stablecoins designed to trade at par with sentence currencies like the dollar. And also in theory are redeemable 1-for-1 for cash from the suppliers. However, questions about Tether’s support emerged over the crypto market for years.
In spite of the long-simmering doubts and guesses about Tether’s finances, USDT traded at $1 for nearly all of its history, as it did Saturday morning UTC.