Circle’s Fed payment rail goal could be crushed by NY Fed’s policy change
The New York Federal Reserve published new rules for counterparties looking to use its money market balancer, casting uncertainty over intentions by stablecoin issuer Circle to use the Fed's systems.
In an April 25 statement, the New York Fed announced adjustments to its guidelines to determine which parties are eligible to participate in its reverse repurchase agreements (RRP).
The updated guidelines could potentially hinder Circle’s chances of gaining access to the Fed’s reverse-repurchase program — a process where the Fed sells securities to eligible counterparties with an agreement to repurchase them at the maturity date.
According to the New York Fed, accessing such a system "should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing RPP operations."
The Circle Reserve Fund, its money market fund managed by investment management firm BlackRock, is one such2a-7 fund that is only available to Circle and could be “deemed ineligible” according to the Fed’s statement.
The regulations governing 2a-7 government money market funds are aimed at ensuring that these funds are able to meet potential redemptions by investors in a timely manner.
Funds under this category must hold at least 10% of its total assets in daily liquid assets and at least 30% of its total assets in weekly liquid assets.
Approval into the Fed's program would allow Circle to earn interest on excess funds by investing in low-risk Treasury securities, allowing the stablecoin issuer to earn interest and help maintain the stability of its stablecoin, USD Coin (USDC).
Raagulan Pathy, Circle’s Asia-Pacific vice president told Cointelegraph in March that Circle “would ultimately like to keep”
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