This article comes fromBPI, Odaily translator | Moni

This article comes from

, Odaily translator | Moni

The U.S. Bank Policy Institute (BPI) released a research article on January 6, pointing out that the U.S. dollar stablecoin USDC may become a "Backdoor Central Bank Digital Currency" (Backdoor CBDC) with the help of asset management giant BlackRock. Let's take a look at how this well-known financial think tank analyzes it.

At the end of 2022, Circle announced that it would transfer USDC's reserve assets from U.S. Treasury bonds to the so-called government-specific money market mutual fund "Circle Reserve Fund" created by BlackRock for Circle. 80% of the assets supporting USDC will be invested in money funds, and the rest 20% will be temporarily reserved as bank deposits.

There is nothing wrong with this matter in itself, but BlackRock's subsequent "operation" is worrying, because it is reported that BlackRock has applied to regulators, hoping to allow the fund to use the Fed's overnight reverse repurchase (Overnight Reverse Repurchase). Repurchase Agreement Facility, ON RRP) tool. If approved, Circle plans to transfer the remaining 20% ​​of the backing assets to the Circle Reserve Fund, that is, all of its funds will be used to participate in the ON RRP investment vehicle.The Fed's overnight reverse repurchase tool (opened for testing in September 2013 and formally used as a normalization policy financial tool in September 2014) allows the Fed to buy back liquidity, which means the Fed is withdrawing funds. Overnight reverse repurchase is a shelter for market funds during periods of excess liquidity. For example, in 2022, the Fed’s overnight reverse repurchase continues to grow, which reflects that the current liquidity is already in excess and the Fed needs to tighten policies. When there is excess liquidity, in order to pursue safe assets, market funds often choose to buy U.S. Treasury bonds. When a large amount of money buys U.S. bonds, the yield of U.S. bonds will continue to decline, and may even fall into the negative interest rate range.In fact, if BlackRock's USDC fund can use the Fed's overnight reverse repurchase tool, it means that people anywhere in the world can obtain an equivalent amount of "dollar reserves" at the Fed by buying USDC, which also means that USDC will become Become a "backdoor central bank digital currency (CBDC)" that can be manipulated by the Fed and BlackRock

BlackRock's USDC fund can act as a fund return tool.

Although BlackRock and the Federal Reserve seem to be singing double songs, so far it is not clear whether its USDC fund can be approved to use the Fed’s overnight reverse repurchase tool. Regulators still have concerns, mainly because of the following two issues:

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As part of the application for the Fed’s overnight reverse repurchase tool, BlackRock’s USDC fund must belong to the high-risk industries of financial technology and stablecoins, so it is necessary to explain the “shareholding ratio in high-risk industries” according to the anti-money laundering AML regulatory compliance requirements , according to previously disclosed data, the answer is almost certainly "100%", and if regulators ask this question for some reason, BlackRock's application may be rejected.

On the other hand, BlackRock must also guarantee that the USDC stablecoin will not be used to launder money or circumvent sanctions. The thing is, Circle is a “private” company based in Massachusetts, and not subject to scrutiny by any of the federal banking agencies, and one of the most prominent features of its business model is decentralized finance, in their own words: "Individual users can actually conduct transactions without implementing standard anti-money laundering AML or sanctions circumvention compliance processes."

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financial stability issues

In fact, the Federal Reserve’s overnight reverse repurchase itself is a "temporary tool". At the meeting to launch this tool in June 2014, Daniel Tarullo, the supervisory director of the Federal Open Market Committee, was very prescient. pointed out:“The Fed’s overnight reverse repos, one of the safest safe havens, are problematic because even financial actors not certified as RRP counterparties can take advantage a tool, the Fed needs to be held accountable both to non-compliant actors and qualified counterparties.”

First of all, once BlackRock's USDC fund is allowed to participate in the Fed's overnight reverse repurchase facility, it may have an impact on domestic commercial banks in the United States.If USDC is included in the Federal Reserve's overnight reverse repurchase tool, anyone in the world can invest overnight in the Federal Reserve system in this way, then USDC will become a magnet for attracting funds to the Federal Reserve during times of market stress, but it will be harmful to business Banks are bad and could even render the Fed's policy tools ineffective. For example, in March 2020, the Federal Open Market Committee of the Federal Reserve issued a policy statement announcing that it would raise the benchmark interest rate to a range of 0.25% -0.5%. Announcing further interest rate hikes), domestic commercial bank deposits increased by more than $1 trillion in just five weeks. However, with BlackRock's USDC fund, the Federal Reserve may be able to quickly "return" the dollar to its own pocket, but commercial banks will not receive a large inflow of deposits, and they will not be able to provide credit lines for companies. The increase in the situation may even further expand the extent of the depletion of commercial banks' funds.

Second, BlackRock's USDC fund is likely to disrupt emerging market countries.Even without an economic crisis, some countries around the world facing idiosyncratic economic problems will see their domestic companies and citizens start buying USDC with their own currency and using the Fed's overnight repo facility to "invest" in the US government instead of funding their local economies.

Frankly, overnight reverse repurchase agreements are essentially the same as deposits, so this mechanism requires credit unions, thrift institutions, and commercial banks to have interest-bearing accounts with the Fed, and for entities that make loans to individual households and non-financial businesses , the Fed limited their access to the overnight reverse repurchase facility. However, even if the Fed sets limits on the overnight reverse repurchase facility, this measure cannot effectively avoid financial stability problems, because if the scale of the overnight reverse repurchase agreement is relatively small, even BlackRock's USDC fund may participate. It can also be tolerated, but the size of the overnight reverse repurchase agreement has exceeded 2 trillion US dollars, accounting for about a quarter of the liabilities of the Federal Reserve system, so it is no longer a financial tool that can "stop and stop".

Summarize

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