US Federal Reserve Banks say stablecoins could ‘become a source of financial instability’
The Federal Reserve Banks of Boston and New York published a staff report on Sep. 26 comparing stablecoins, such as USDT and USDC, to money market funds. Key findings in the report include the observation that stablecoins and money market funds follow similar patterns during runs and that stablecoins could inject instability into the broader financial system.
The report, titled “Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?” includes a comprehensive comparison of investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020.
Per the publication:
“Our findings show that stablecoins are vulnerable to runs during periods of broad crypto market dislocation as well as idiosyncratic stress events. Should stablecoins continue to grow and become more interconnected with key financial markets, such as short-term funding markets, they could become a source of financial instability for the broader financial system.”
The researchers also note that stablecoins appear to have a discrete “break-the-buck” threshold of $0.99, below which redemptions accelerate and runs — periods in which investors flee, potentially causing an asset crash for remaining investors.
A break-the-buck threshold in money market funds occurs when the net asset value of a fund drops below a dollar, this can lead to investor shares, valued at $1.00, to dip below market price and cause investors to seek safe harbor elsewhere.
As Cointelegraph recently reported, Italy’s central bank is also taking measures to identify contributing factors and prevent stablecoin runs. In a recent statement, the Italian banking authority cited the 2022 Terra Luna collapse as an example that stablecoins “have not proved stable at all.”
According to the report, Italy has also called upon global lawmakers to form an international regulatory body to govern cryptocurrency, stablecoins, and related technologies.
Related: ‘It’s going to get worse for banks’ — JPMorgan CEO on overregulation
The London Stock Exchange launched a Microsoft-powered blockchain platform for private funds, marking the first such initiative by a global exchange.
US President Donald Trump has appealed the district court’s block on Fed Governor Lisa Cook’s removal, but new evidence has emerged.
And they’re off! Bridget Phillipson was first away in her two-horse race with Lucy Powell in the Labour deputy leadership stakes.
Facing a rival who was sacked from the government nine days earlier, the education secretary said the deputy leader should be a cabinet minister, as Angela Rayner was.
Launching her campaign at The Fire Station, a trendy music and entertainment venue in Sunderland, she also vowed to turn up the heat on Nigel Farage and Reform UK.
She also repeatedly called for party unity, at a time when Labour MPs are growing increasingly mutinous over Sir Keir Starmer’s dealings with sacked Washington ambassador Lord Mandelson.
Despite Ms Phillipson winning 175 nominations from Labour MPs to Ms Powell’s 117, bookmakers StarSports this weekend made Ms Powell 4/6 favourite with Ms Phillipson at 5/4.
But though the new deputy leader will not be deputy prime minister, a title that’s gone to David Lammy, Ms Phillipson praised the way Ms Rayner combined the two roles and rejected suggestions that as a cabinet minister she would be a part-time deputy leader.
Phillipson’s deputy leadership rival Lucy Powell. Pic: Reuters
“What can be achieved under a deputy leader with a seat at cabinet, just look at Angela Rayner,” Ms Phillipson told her enthusiastic supporters.
“Angela knew the importance of the role she had. There was nothing part-time about her deputy leadership.
“Last year I campaigned up and down the country to get Labour candidates elected – I’ve not stopped as education secretary – and I won’t stop as deputy leader.
“Because with local elections, and with elections in Wales and Scotland right around the corner, that role is going to be more important than ever.
“So that’s why, today, I pledge to continue Angela Rayner’s campaigning role as deputy leader.
“Continuing her mission to give members a strong voice at the cabinet table.
“Her ruthless focus on getting our candidates elected and re-elected, alongside her total determination to drive change from government. Because what mattered was not just what she believed, but that she could act on it.”
Read more
Analysis: Sacking Powell might haunt Starmer
Explainer: How does the deputy leadership contest work?
Ms Phillipson pledged to run a campaign of “hope, not grievance” and claimed the party descending into division would put the chances of children and families benefiting from Labour policies at risk.
But admitting Sir Keir Starmer’s government had made mistakes, she appealed to party members: “You can use this contest to look backward, to pass judgement on what has happened in the last year, or you can use it to shape positively what happens in the run-up to the next election.
“Back me so I can unite our party, deliver the change we want to see and beat Reform. Back me so together, we can deliver that second term of Labour government.”
Phillipson with Labour supporters at her campaign launch on Sunday. Pic: PA
Starmer’s candidate vs Manchester mayor’s
As she did in a speech at the TUC conference last week, Ms Phillipson spoke about her upbringing “from a tough street of council houses in the North East all the way to the cabinet”.
At the TUC, she said she grew up – “just me and my mam” – and told how when she was nine, a man who’d burgled the house turned up at the front door with a baseball bat and threatened her mother.
Ms Powell, who enjoys the powerful backing of Labour’s ‘King of the North’ Andy Burnham, called this weekend for a change in culture in 10 Downing Street, with better decisions and fewer unforced errors.
His backing has led to the deputy contest being seen as a battle between Sir Keir’s candidate, Ms Phillipson, and that of the Greater Manchester mayor, seen increasingly as a leadership rival to the prime minister.
And like all the best horse races, with the betting currently so tight, when the result is declared on 25 October the result could be a photo-finish.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment11 months agoHere are the best electric bikes you can buy at every price level in October 2024