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USDC Issuer Circle Moves Over $8 Billion To Protect Its Reserves

To prepare for the possibility of a U.S. government debt default stablecoin issuer Circle is redistributing the reserves supporting the $30 billion USD Coin (USDC).

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To prepare for the possibility of a U.S. government debt default stablecoin issuer Circle is redistributing the reserves supporting the $30 billion USD Coin (USDC).

This Is A Precaution Against The Risk of a US Debt Default

According to the fund’s website, on May 16 the $8.7 billion in overnight repurchase (repo) agreements were added to the Circle Reserve Fund’s portfolio which is managed by global investment management firm BlackRock . Banking behemoths like BNP Paribas, Goldman Sachs, Barclays and Royal Bank of Canada are all parties to the so-called repo agreements .

Overnight repurchase (repo) agreements are essentially collateralized loans with short terms. U.S. Treasuries are the security being sold by the borrower in exchange for cash . The borrower will then repurchase the collateral the following day at a slightly increased price . Large institutional investors with excess cash are really depositing that cash with dealers on Wall Street who are short on capital.

“While this plan has been underway for many months the inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a U.S. debt default” a Circle spokeswoman said in an email.

USDC Issuer Circle Moves Over $8 Billion To Protect Its Reserves2

If the Debt Ceil Isn’t Raised the U.S. Can’t Pay Its Debts

This comes as Congress and Vice President Joe Biden’s administration are at an impasse over whether or not to increase the debt ceiling which limits the amount of money the government can borrow . According to Treasury Secretary Janet Yellen the Department of the Treasury will be completely out of cash by early June if the debt ceiling is not increased.

As part of the preparations the Circle spokeswoman said that as of May 10 the fund had stopped holding Treasurys with maturities beyond the end of the month and was instead shifting its holdings into cash or government repo transactions . Securities having maturities of less than three days are not acceptable as collateral for repo transactions the spokeswoman said .

Circle CEO Jeremy Allaire told Politico last week “We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.”

 

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