My friend and monetary theory teacher Jeff Hummel writes beautiful responses to various friends who comment on monetary issues.
In discussing Tether, one of his friends quoted a source as saying, “Tether is the third-largest buyer of three-month U.S. Treasury bonds and is expected to become the first buyer next year. Tether currently holds more US Treasury bonds than the governments of Germany, the United Arab Emirates and Australia.”
Jeff responded:
Thank you for your interesting comments about Tether. This gave me an opportunity to check it out your source For more details, here is a direct quote from the article: “According to the press release, Tether became the third largest buyer of US three-month Treasury bonds in the second quarter of 2024, after the UK government and the Cayman Islands government. . . .Tether Holdings held $97.6 billion worth of U.S. Treasury bonds in June 2024, a new high. Therefore, Tether currently holds more US Treasury bonds than the governments of Germany, the United Arab Emirates (UAE), and Australia. Therefore, Tether currently ranks 18th among U.S. Treasury bond holders.”
The Treasury issues Treasury bills every week, and I can’t find government data on how many of those bills have a maturity of three months. This makes it difficult to evaluate the first sentence quoted above. However, note that the next two sentences refer to all Treasury securities held by Tether, not just T-bills. So I decided to compare Tether’s $97.6 billion worth of government bonds with the total amount of government bonds outstanding. The most convenient data for me to access is from previous quarters, but since government debt is almost always increasing in both real and nominal amounts, this is biased upward as a measure of the relative amount of Tether holdings.
As of the first quarter of 2024, the total market value of public Treasury debt outstanding was $24.6937 trillion (par value was $2.115 billion higher). And that doesn’t include the additional $7.0531 trillion generated. venomous National debt held primarily by other government agencies, such as the Social Security and Medicare trust funds, which cannot be sold to the public and only represents money the government has borrowed and then spent on its own. Therefore, Tether’s $97.6 billion is only 0.395% of publicly held U.S. debt. For comparison, the Federal Reserve holds 16.88%, money market mutual funds hold 10.30%, and commercial banks and other depository institutions hold 5.08%. [Source: Federal Reserve Board, Financial Accounts of the United States (June 2024), p. 119.]
The par value of national debt in all forms of government bonds in the first quarter of 2024 was $6.0617 trillion. As your source points out, it is unclear whether all of the assets held by Tether are government bonds. Among them, it is done in the form of repo or reverse repo, and the maturity of the underlying securities is not specified. “In detail, Tether holds $80.95 billion in U.S. Treasury securities, $11.287 billion in overnight repurchase agreements on U.S. Treasury securities, and $997.373 million in term deposit repurchase agreements on U.S. Treasury securities,” the accounting firm BDO Italia SpA said. “I assume there is,” he said. Including the total amount both repos (government bonds lent by Tether) and Reverse repo (treasury borrowed by Tether) technically double counts Tether assets, but the amount is minimal. So, counting all these transactions and assuming they all involve T-bills, this means that Tether holds 1.34% of the outstanding T-bill amount, which is admittedly a significant percentage for a single company.
How does the article compare to foreign holdings? The total market value of foreign holdings of all government securities has been declining in recent years, reaching $8.1149 trillion (32.8% of all publicly held debt) as of the first quarter of 2024. At the time, foreign governments held $3.815 trillion, less than half the amount of government bonds held overseas, of which only $267 billion were Treasury bonds of any kind. To preserve the confidentiality of private holders, the United States does not break down foreign government and private holdings by individual country. However, total holdings of German government bonds, both government and private, were $90.2 billion. [Source: U.S. Treasury Department, “Table 5: Major Foreign Holders of Treasury Securities.] This is only 0.37% of public debt and 1.13% of foreign debt. This puts Germany’s holdings of U.S. government debt behind 18 other countries as of the first quarter of 2024. Therefore, the article’s statement “Tether is now the 18th largest holder of U.S. Treasury bonds” appears to be comparing Tether holdings, not Tether holdings. It has absolutely nothing to do with domestic debt holders, but only with foreign holders.
here Wikipedia entry On tether.
Jeff wrote: “This is not to deny that Tether has become a revolutionary and useful part of the financial system. It is essentially a digital bank that holds fractional reserves in the form of fiat currency but holds most of its assets in the form of financial investments. This issues what can be described as digital notes or deposits that are more liquid than regular bank deposits, especially for cross-border transactions and trading with other cryptocurrencies. Therefore, Tether provides services that traditional banks cannot provide due to government regulations.”
