US financial regulators voice concerns over Tether and Facebook’s Diem
- The regulators believe Tether is akin to an unregulated money-market mutual fund.
- According to the watchdogs, Diem’s potential to rapidly attain mass adoption is a big problem.
- Tether claims that it is keen on observing rules as well as helping regulators formulate new ones.
Tether (USDT/USD) and Facebook’s Diem, formerly Libra, were the main topic in a recent private meeting that discussed the risks stablecoins pose to financial systems. A report citing people familiar with the matter disclosed this news on July 27, noting that the US Treasury Secretary, Janet Yellen, led the meeting, which comprised the President’s Working Group on Financial Markets and several us regulators.
According to the report, the participants were particularly concerned over Tether’s claims to be holding a vast amount of commercial paper, debts that firms issue to get funds to sustain their everyday needs. Per the officials, Tether’s operations are similar to an unregulated money-market mutual fund, which is vulnerable to a messy investor exit.
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The sources that requested to remain anonymous further said that the regulators raised alarms over Diem. Diem is an upcoming stablecoin from the Diem Association, which comprises leading firms, such as Facebook, as well as non-profit organizations. Allegedly, regulators believe Diem’s likeliness to achieve mainstream adoption quickly due to its association with Facebook, which has approximately 3 billion monthly users, is a problem.
Yellen urges watchdogs to work hastily to regulate stablecoins
With mounting concerns that the stablecoin market is rapidly expanding, and that it facilitates illegal transactions mounting, Yellen underscored the urgency of regulators working swiftly to rein in the industry. At the moment, the stablecoin market is worth well over $100.00 billion (£72.06 billion) and USDT accounts for more than half of this capitalization.
Michael Hsu, the Acting Comptroller of the Currency, noted that financial watchdogs are inspecting USDT’s commercial paper accounts to determine whether each coin is indeed backed by the equivalent of one US dollar. According to him, regulators have been increasingly scrutinizing stablecoins after the onset of the COVID-19 pandemic, which saw investors withdraw their funds.
Commenting on the increasing scrutiny on USDT, Tether issued a statement, saying it is a pioneer in the stablecoin industry, which is relatively new. To this end, the company is not only observing the current rules but also playing a part in creating new ones. Unlike Tether, Facebook and the Diem Association did not respond to requests for comment.
Stablecoins continue attracting the interest of financial regulators in different jurisdictions. Before the US, the Deputy Governor of the People’s Bank of China, Fan Yifei, said stablecoins pose a significant threat to the international monetary system.