Stablecoin Tether (USDT) poses risks to the stability of the financial system, Boston-based Federal Reserve Bank President Eric Rosengren said at an event on Friday.
In one of the slides in his presentation, Rosengren referred to “intermittent disruptions” in short-term lending markets, citing Tether as an example of a “new disruptor.”
On the same day, Rosengren gave an interview to Yahoo Finance, in which he revealed his position in more detail:
“The reason I talked about Tether and stablecoins is because if you look at their portfolios, they essentially look like the mainstream money market fund portfolios, but maybe more risky. Tether has a variety of assets, with spreads wide enough during the pandemic. “
In this case, widening the spread is understood as an increase in the gap in profitability between risky assets, such as corporate bonds, and safer ones, for example, government bonds. Tether in May first provided details of the distribution of USDT backing assets. It turned out that almost half of its reserves are in commercial papers. Wall Street officials later said they were unaware of the presence of such a large investor in the market.
“We need to think about what, in a broader context, can disrupt short-term credit markets, ” Rosengren continued.
Of course, stablecoins are one of the elements. I fear that the stablecoin market, now largely unregulated, is becoming an increasingly important sector of our economy as it grows, and we must seriously consider what happens when people quickly run out of these instruments. “
Wall Street veteran and bitcoin advocate Caitlin Long finds Rosengren’s comments noteworthy:
“Interestingly, Governor Brainard and Chairman Powell talked about stablecoins. But now Rosengren is bluntly referring to Tether. This is escalation. The Fed is extremely Fedspeak savvy. They use constructs so carefully that different parties can see their meaning in the Fed’s statements. The same was true of their earlier statements about stablecoins. But today the Fed has moved into a more active phase. They are rarely as straightforward as they are today. “
Fedspeak was originally used to describe former Fed Chairman Alan Greenspan’s way of making verbose statements that can be interpreted in several ways, and then the similar tendencies of his successors. Long has urged bitcoin supporters who view concerns over Tether as overvalued to “not kill the messenger.”