According to a report by the television media Bloomberg, foreign central banks have been liquidating Treasury holdings to provide cash from the Federal Reserve in response to banking turmoil. This led to a large decrease in foreign share of Treasury securities with a decrease of $76 billion in the week through March 22. Joseph Abate, the Managing Director of Barclays declared this was pre-cautionary. Gabor Gurbacs, the Strategy Advisor at the global investment firm VanEck Associates Corporation, then took to Twitter to comment on this matter and declared the asset-backed stablecoin Tether to be the biggest buyer. This is supported by Willem Middelkoop, a popular investor who stated on the same platform that foreign banks have been selling off Treasuries, with Russia almost selling all of theirs and China also decreasing their share. Gurbacs then added, 'If Tether was a country, it’d be among the top 30 holders of U.S. treasuries.' The implications of these sales by foreign central banks, such as Russia and China, suggest a decrease in confidence; however, one of the largest holders is still able to come in and buy Treasuries at the same time.
Tether, a stablecoin backed by its holdings of dollar, euro and other fiat currency, is able to buy treasuries because its asset-backed status grants it access to the necessary resources. This is arguably one of the first positives for the U.S. in the wake of the banking crisis outbreak, as the Treasury itself hasn't had to resort to monetisation of debt to keep the asset markets supported. Such action by Tether is significant, as if it was instead a country it would sit among the top 30 holders of U.S. treasuries.
The current pandemic situation has been an unprecedented one, and the U.S. has had to take action to encourage confidence and support. The provision of liquidity by the Federal Reserve, as well as the ability of asset-backed stablecoins to come in and purchase Treasuries, suggests that the U.S. is learning to manage the crisis better and may well yet come out of it strong and resilient. Nonetheless, the decline in confidence of foreign central banks in U.S. Treasuries indicates a rather disastrous outlook in the short term.
Izabella Allen
- 2023-04-03
Tether Buying Treasury Securities During Times of Turmoil
This article looks at the effects of the economic crisis upon foreign central banks liquidation of treasury securities and the implications of asset-backed stablecoin Tether acting as a large buyer.
