Yesterday during a presentation titled “financial stability,” Eric Rosengren, president of the Boston federal reserve, spooked some crypto community members when he mentioned there might soon be regulation and oversight regarding the crypto world. But in hindsight, his words might be an idea that won’t be implemented in the mid-term.
Rosengren Mentions Tether
Rosengren specifically mentioned stablecoin Tether as a digital currency causing three issues in “financial stability.” he said Tether poses risks to the regular disruptions to medium-term credit markets, the housing market, and emergency lending facilities in times of crisis. It is worth noting that the market cap of stablecoins is growing at an exponential rate and is now about 21% of the entire assets under management for mutual funds in the prime money space.
Stablecoin market cap chart. Source: BostonFed
In a prior interview with yahoo finance, Rosengren remarked that “the rapid growth of the stablecoin market is a cause concern and deep retrospect. I strongly believe we need to identify all factors that are disruptors to the short term credit markets, and stablecoins stand out as one of them.”
However, Caitlin Long, the CEO of Avanti financial group, warned that Rosengren’s remarks could be an indication that the federal reserve is already planning a stablecoin regulatory framework.
Caitlin long remarks. Source: Twitter
Possible Fed Action On Stablecoins
In his response, Rosengren didn’t show agreement or a disagreement with long’s views. He only remarked that while stablecoins’ growth isn’t a direct threat to the credit market, there is a need to evaluate them based on the risks they can and pose to the credits market if allowed to keep growing at their current rate. Also, there is a need to evaluate the level at which the fed needs to step in when stablecoins start dominating the credit market space.
“I am not worried at the exponential growth of the stablecoin market as it is pretty much unregulated. I am worried about how to create awareness in those interested in this kind of instrument and help them make a better decision as this unregulated market becomes a crucial part of our economy. I am concerned that stablecoins might create a financial stability problem in the future, the same way the money market funds badly disrupted the credit markets. The only solution is to start planning right now on what to do to prevent stablecoins from creating a bad market difficulty.”
Rosengren further revealed that there was a stablecoin that had serious financial problems last week, but he didn’t mention the name of the stablecoin. Also, Rosengren avoided answering the question about the federal reserve’s action in the case of stablecoins, especially Tether seems like a risk to the wider credit markets. Even though Brian Cheung asked him twice, he avoided the question on both occasions.
He only remarked that the backing of all stablecoins, including Tether, seems like a riskier version of the prime money market fund. Hence, liquidity injection can be used to backstop Tether the same it was used in times of crisis for the money markets.
March this year was the first time Tether revealed their complete reserve balance sheet. Still, they had settled a lawsuit with the New York State Attorney General (NYAG) a month prior after the latter accused them of failing to fully disclose the extent with which they are supported by fiat.
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