Credit ratings agency Fitch has warned that sustained currency gains, not fully underpinned by strong assets, could destabilize credit markets in the near term. In the comments, the agency explained that currencies fully backed by safe assets are less risky for financial markets.
The agency offers individually backed US dollars (USDC) as an example of a fully supported and stable currency, but can the authorities still be concerned?
They warned that the trail can be global or systemic. Tether, on the other hand, holds 26.2% of its March 2021 reserves in cash, escrow deposits, repo agreements, and government bonds.
Fitch reported that Tether Trading Notes (CP) are valued at $ 20.3 billion. , or nearly 50% of reserves, probably more than most money market premium funds (MMFs) in the US and EMEA.
“The sudden massive disbursements of USDT will bring short-term stability to the credit markets, especially if they occur during periods of increased selling pressure in the CP market, and if the repayment of other stable foreign exchange reserves is strengthened. with similar assets.
“Facebook-backed Diem Stablecoin is another example that Fitch uses to illustrate regulation. Diem proposes to have 80% Treasury reserves and 20% FMM in short-term Treasury bonds.
Companies like Diem may tighten rules on steel coins and that “the potential risk of asset pollution from liquidating stable foreign exchange reserves could put pressure on tightening regulation in the emerging sector,” the note said.
Fitch is aware of warnings from US regulators that companies with asset allocations similar to Tether may not remain volatile if short-term credit spreads widen significantly.
This is in stark contrast to the way stablecoins are typically traded added Fitch analysts. Last month, Eric Rosengren, chairman of the Boston Federal Reserve Bank, expressed concern about the exponential growth of steel coins.
“I think we need to look more closely at the potential for disruptions in the short-term loan market over time. A stable portfolio is definitely one thing, ”he said.