Fed’s Rosengren: Tether, Stablecoins Disrupt Short-Term Credit Market

Tether is not a good thing for the financial system, according to a senior U.S. Federal Reserve official.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said tether was one of the risks to financial stability.

He said it was one of the coins that was a “new disruptor” for the short-term credit market.

“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, adding that Tether “has a number of assets that, during the pandemic, the spread got quite wide on those assets.”

By “spread” Rosengren said he meant the selloff in the credit markets. It refers to the difference in yield getting higher between a risky asset like a corporate bond and one that is considered safe, like a Treasury bond.

He also said the industry needs to look more at “what could disrupt short term credit markets over time, and certainly stablecoins are one element.”

“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,” he said, according to the report.

PYMNTS wrote that Jim Cunha, SVP of secure payments and FinTech with the Boston Fed, said issuing and scaling of digital fiat would have to involve what’s in place today, which means things like interoperability between different banks’ fiats and payment rails. As card networks have been working with FinTechs, they’ve created interoperability through working with various legacy financial and payment systems and the consumers wanting to use digital assets.

Cunha said the blockchain rails can do more than just issue digital fiat — they can also be used to help move currencies in “smart” ways.