Home
News
- Federal Reserve official: Calls for studying the astonishing growth of Stable coins
- Boston Federal Reserve President Terms Tether as a disruptor
- Stablecoin growth has a Disruptive effect on the financial stability
In a presentation titled “Financial Stability,” Boston Federal Reserve President Eric Rosengren has singled out Tether as one of the three Financial Stability Challenges faced by the Banking sector. Ever since the rise of cryptocurrency, Central Banks are pondering their future and discussing how to bring them under some format of regulatory authority.
Three burning issues were identified.
Rosengren identified three issues, including risks to the housing market, the need for emergency lending facilities during crises, and disruptions to short-term credit markets. He singled out Stablecoin Tether, which he termed as the disrupter to short-term credit markets.
The pace of stablecoin growth a worrying factor
Rosengren presented a follow-up slide that underlined that stable coins are growing at an incredible pace and constitute 20% the size of the total AUM for prime money market mutual funds.
Talking to Yahoo Finance, Rosengren said that we should be concerned because stablecoins are growing rapidly, to the extent of exponential growth. The ability of stablecoins to disrupt the short-term credit markets over time is one fact that should make us worry.
Is this groundwork for Federal Reserve’s regulatory framework for stablecoins
Federal Reserve official’s views have set the alarm bells ringing among the stablecoin community. Avanti Financial group CEO Caitlin Long said that this could be the preamble of the Federal Reserve’s regulatory framework for stablecoins. On the other hand, Rosengren could be taking a more tempered view.
Stablecoin growth perceived as a threat to future
Rosengren did not exactly label stablecoins as a threat to the credit markets alone. However, he did say that they must be evaluated closely if they could become a threat later. This possibility must be taken into consideration given the phenomenal growth stablecoins are showing
Disruptive effects on the financial stability-A cause of worry
Rosengren noted that the stablecoin market is pretty unregulated, and it is in a growing phase and will become an important segment in our economy. If people run after stablecoins very quickly, the disruptive effects on financial stability are always there. Rosengren recalled how the money market funds caused a bad disruption in credit markets. Careful thinking of what will happen to stablecoins if a crisis hits the market will help to preempt any future financial stability problems.
Rosengren said that last week a particular stablecoin ran into problems. However, he did not name which one. The anchor twice asked Rosengren to specify if the Fed would regulate Tether or other stablecoins if they posed a risk to broader credit markets in the future. However, Rosengren declined to say.
Federal Reserve officials noted that Tether and other stablecoin look like a money market fund but with loads of risks attached. For example, if liquidity is injected into the money market in a crisis, it can act as a stopper for Tether and other stablecoins.
Tether disclosed for the first time its full reserve balance sheet in March and settled a suit with NYAG, which reported the degree to which the stablecoin was backed by fiat.
Payment services have seen a lot of change in recent times. Today technology is changing the provision of financial services and products. The need for having payment systems that provide low-priced and near-instantaneous domestic payments is being felt. These challenges are being solved to a great degree by the advent of cryptocurrency. The volatility of cryptocurrency gave birth to Stablecoins. They have the main features of cryptocurrency but seek to stabilize the price of the “coin” by linking its value to that of a pool of assets.
Stablecoins can serve as a means of payment and a store of value. Thus, they could contribute to developing global payment arrangements that are quicker, economical, and more inclusive than present structures. However, they are still in a nascent stage and not tested globally.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
