S&P Downgrades Tether’s USDT Stability to “Weak” (S&P)
S&P has reassessed the ability of Tether (USDT) to maintain its peg to the U.S. dollar to its lowest stability score of 5 (weak) from 4 (constrained), highlighting that while the token has generally maintained its dollar peg and benefits from large scale and liquidity, its risk profile has deteriorated due to a growing share of higher‑risk reserve assets such as Bitcoin, gold, secured loans, and corporate bonds. The report also emphasizes persistent transparency gaps around the composition, credit quality, and custody of reserves, limited insight into Tether’s risk appetite and governance, and the absence of a robust regulatory framework or clear asset segregation to protect holders if the issuer became insolvent. S&P also notes structural frictions in primary market redeemability and the potential vulnerability of USDT’s peg in a severe stress event. [Source: S&P] By comparison, S&P has assigned its second highest stability score of 2 (strong) to Circle’s due to its full backing by low-risk assets, primarily short-dated securities, and deposits with banks. [Source: S&P]
Competing Digital Monies (BIS)
The Bank for International Settlements (BIS) published a paper that assesses how the introduction of a central bank digital currency (CBDC) and/or a central bank-run fast payment system (FPS) affects bank deposits and private tokens issued by digital platform operators. The paper finds that the key welfare driver is whether payments are interoperable across “walled gardens.” In a stylized model with banks and digital platforms, non‑interoperable systems generate financial exclusion and allow intermediaries to extract rents from merchants, reducing trade volumes and welfare relative to the social optimum. Introducing either a retail CBDC or an FPS makes payment instruments interoperable, eliminates financial exclusion, maximizes the volume of transactions, and unambiguously raises social welfare, even though it may lead to some degree of disintermediation. In this framework, a well-designed retail CBDC is effectively equivalent to a central bank-run FPS for the industrial organization of the payment system, implying that in jurisdictions with robust fast payments, launching a retail CBDC is less urgent. [Source: BIS]
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I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
