US Fed Official Calls Tether a ‘Challenge’ to Financial Stability
A senior U.S. Federal Reserve official has called Tether’s USDT stablecoin a risk to the stability of the financial system.
In a slide presentation Friday, Eric Rosengren, president of the Federal Reserve Bank of Boston, listed Tether among the “financial stability challenges” the U.S. central bank is watching.
“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 said. Tether “has a number of assets that, during the pandemic, the spread got quite wide on those assets.” Spread widening refers to a selloff in the credit markets, when the difference in yield increases between a risky asset such as a corporate bond and one perceived 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.”
