Reserve Dollar

<p>The Federal Reserve Bank of New York (NY Fed) has recently made changes to its counterparty criteria for its reverse repurchase program (RRP), which could potentially prevent Circle, a stablecoin issuer, from accessing the sought-after facility.</p>



<p>According to a NY Fed <a href="https://www.newyorkfed.org/markets/opolicy/operating_policy_230425" rel="nofollow noopener" target="_blank">press release</a>, funds registered as &#8220;2a-7 funds&#8221; with the Securities and Exchange Commission (SEC) and &#8220;organized for a single beneficial owner&#8221; are likely to be considered ineligible under the new guidelines. Circle&#8217;s USDC reserve fund, managed by BlackRock, appears to fall under this category.</p>



<h2 id="reverse-repurchase-program-8217-s-attraction-and-potential-risks">Reverse repurchase program&#8217;s attraction and potential risks</h2>



<p>Initially established as a financial system stabilization tool, the RRP permits selected counterparties like banks and money market funds to lend to the Fed overnight at a fixed rate, which is currently 4.8%. The program has evolved into an attractive option for earning high yields with minimal counterparty risk, with nearly $2.3 trillion in funds currently held in the program.</p>



<p>In January, the Bank Policy Institute, a prominent advocacy group for US banks, cautioned that if Circle&#8217;s USDC were to gain access to the RRP, it could create a stablecoin effectively backed by the Fed, posing a potential risk to the stability of the financial system.</p>



<h2 id="circle-8217-s-usdc-reserve-fund-and-future-plans">Circle&#8217;s USDC reserve fund and future plans</h2>



<p>Circle, which is responsible for issuing the $31 billion USDC stablecoin, maintains around $25 billion of its reserves in short-term US Treasury bills in the exclusive Circle Reserve Fund, managed by BlackRock. The fund is registered as a &#8220;2a-7&#8221; government money market fund. Circle&#8217;s objective for the fund was to secure access to the Fed&#8217;s RRP through BlackRock, allowing the company to move USDC&#8217;s remaining cash reserves from partner banks to the fund under a Fed account.</p>



<p>With the NY Fed&#8217;s updated eligibility rules, Circle&#8217;s access to the reverse repurchase program may be denied, potentially impacting the company&#8217;s plans for its USDC reserve fund.</p>

Circle’s access to NY Fed’s reserve repurchase program at risk due to new rules

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