Circle could be ineligible for access to the Fed's money market balancer amid latest New York Fed rules


  • New York Fed announced adjustments to who it deems eligible to participate in its reverse repurchase agreements (RRP).
  • RRP defines how Fed sells securities to eligible counterparties with an agreement to repurchase them at maturity.
  • Updated rules could render stablecoin issuer Circle "ineligible" for access to the Fed's money market.
  • Access to the RRP programs could bolster efforts to maintain the stability of its stablecoin, USDC.

Circle could be ineligible to access the Federal Reserve's money market balancer. This comes after the New York Fed adjusted its rules, casting doubt over the stablecoin issuer's intentions to use the Fed's systems.

The news comes after an April 25 statement in which the NY Fed disclosed changes in its guidelines to determine which parties qualify to participate in its reverse-repurchase agreements (RRP). The new guidelines could hamper Circle's chances of accessing the Fed's RRP, a process where the Fed "sells securities to eligible counterparties with an agreement to repurchase them at the maturity date."

Naturally, and as stipulated by the New York Fed, access to such a system should be a basic extension of an existing business model.

SEC-registered 2a-7 funds that, in the sole judgment of the New York Fed, are organized for a single beneficial owner, or exhibit sufficient similarities to a fund so organized, generally will be deemed ineligible to access reverse repo operations.

Why Circle could be ineligible for the RRP

According to the Fed's statement, Circle's money market fund, Circle Reserve Fund, managed by BlackRock investment management firm, is one such 2a-7 fund, available only to Circle and could be "deemed ineligible."

The rules governing 2a-7 government money market funds ensure that these funds can conveniently meet potential redemptions by investors. Based on the rules, funds of this class must hold at least 10% of their total assets in daily liquid assets and at least 30% in weekly liquid assets.

With access to the Fed's RRP program, the stablecoin issuer could earn interest on excess funds by investing in low-risk treasury securities. In turn, this would allow Circle to earn interest and bolster efforts to maintain the stability of its stablecoin, USDC Coin (USDC).

Citing Circle's Raagulan Pathy in a March statement, the issuer's Asia-pacific vice president said:

Circle would ultimately like to keep its cash with the Fed and use the payment rails to the Fed because that moves us away from our reliance on TradFi partners.

At the time, Circle held 80% of its reserves in treasuries despite the issuer's expansive relationships with BNY Mellon and its new banking association with Cross River.

Circle shifts focus to banking relationships

The stablecoin issuer only started investing part of its fund into the Circle Reserve Fund in November 2022. This precaution was intended to avoid risks while upholding the redeemability of its coins for holders.

Since the USDC de-peg in the wake of the Silicon Valley Bank (SVB) collapse, however, Circle shifted its focus towards establishing more banking collaborations in a global capacity.

Also Read: MakerDAO to transfer up to $500 million in USDC to Coinbase custody for 2.6% yield


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