The acceptance of the stablecoin Tether by the US government has raised questions and sparked debates. One particular inquiry revolves around why the US Federal Reserve allows Tether to circulate dollars under the same name. Several theories attempt to shed light on this issue, and here is a possible explanation:
The answer is this: Because Tether is the best thing that has happened to the dollar in a long time. Anyone, like the Federal Reserve, has an interest in the dollar being and staying strong globally, must love Tether:
Tether gave the dollar a technical upgrade for free. Other central banks are getting bogged down in CBDC plans that, if they ever come to fruition, will create a pretty screwed-up arrangement – the market will do it for free on the dollar. Tether moves dollars around the world on seven or eight blockchains in real time, is fully compatible with smart contracts, and can enforce sanctions more efficiently than any bank.
Tether single-handedly made the dollar the leading currency in the crypto market instead of Bitcoin in just a few years. Tether is used in smuggling between Russia and China and to circumvent sanctions against Russia or Venezuela. Tether is in play when citizens of Lebanon and Turkey protect themselves against inflation and when the opposition government of Myanmar chooses its own currency. Tether is being used en masse in the remittane from the US to Latin America.
The Brics states around Russia and China may announce an alternative reserve currency. Brazil may increase the share of Chinese renminbi in its reserves, China push its digital yuan, and Russia sell its oil for yuan or rupees: but the only currency that is rapidly gaining traction from below, among markets and people, is the Dollar. And because of Tether. Tether is the key to hyperdollarization.
As a bonus, Tether is one of the largest private sector buyers of US Treasuries. The stablecoin lends many billions of dollars to the US government.
Finally, the Tether Dollars are also stabilizing the value of the Dollar. The banks inflate the money supply with their electronic dollars, the customers’ deposits are only protected by the hope that not everyone will withdraw at the same time, and that in case of doubt the deposit insurance will take effect. Tether, on the other hand, more than fully covers its electronic dollars (according to its own statements) with tangible government bonds, corporate bonds, gold and Bitcoin. Tether helps the Federal Reserve back the dollars in circulation.
It is just a guess. But I think the US Federal Reserve has every reason not to ban Tether, but to love it.
