My friend and monetary theory teacher (mine) Jeff Hummel writes wonderful responses to various friends commenting on monetary issues.
In a discussion about Tether, one of his friends quoted a source as saying, “Tether is the third largest buyer of three-month U.S. Treasuries and is expected to be the first next year. Tether now owns more US government bonds than the governments of Germany, the United Arab Emirates (UAE) and Australia.”
Jeff responded:
Thanks for your interesting comment about Tether. It motivated me to check your source for more information. Here are some direct quotes from the article: “Tether became the third-largest buyer of three-month U.S. Treasuries, behind the governments of the United Kingdom and the Cayman Islands in the second quarter of 2024, according to a press release. . . Tether Holdings owned $97.6 billion in U.S. Treasury bonds as of June 2024, a new high. That’s why Tether now owns more US government bonds than the governments of Germany, the United Arab Emirates (UAE), and Australia. That’s why Tether is now the 18th largest holder of U.S. Treasury securities.”
The Treasury Department issues government bonds every week, and I can’t find any government data on how many of those bills have three-month maturities. This makes the first sentence I quoted above difficult to assess. But note that the next two sentences refer not only to government bonds, but also to all government bonds held by Tether. That’s why I decided to compare Tether’s $97.6 billion in government bonds to the total amount of government bonds outstanding. The most easily accessible data for me is from the previous quarter, but since the national debt is almost always rising, in both real and nominal amounts, this provides an upward indication of the relative amount of Tether ownership.
As of the first quarter of 2024, the market value of the total outstanding amount of government bonds was $24,693.7 billion (with a face value of $2.115 billion higher). And this doesn’t include the additional $7,053.1 billion from the gross government debt held by other government entities, primarily the Social Security and Medicare trust funds, which are not marketable to the public and represent only money that the government has loaned to itself and then spent. So Tether’s $97.6 billion amounts to just 0.395 percent of the U.S. national debt. By comparison, the Federal Reserve holds 16.88 percent, money market funds 10.30 percent and commercial banks and other depository institutions 5.08 percent. [Source: Federal Reserve Board, Financial Accounts of the United States (June 2024), p. 119.]
The nominal value of government debt in the form of government bonds of all denominations was $6,061.7 billion in the first quarter of 2024. It is not clear that all of Tether’s assets are treasury bills, because, as your source indicates, a small amount of them take the form of repos or reverse repos, where the maturity of the underlying securities is not stated. Quoting again: “In detail, Tether held $80.95 billion in U.S. Treasury bonds, $11.287 billion in overnight U.S. Treasury repurchase agreements, and $997.373 million in U.S. Treasury Term Reserve Repurchase Agreements, accounting firm BDO Italia SpA estimates.” Including the total of both repos (these are government bonds borrowed by Tether) And reverse repos (which are government bonds borrowed by Tether) are technically double counting Tether assets, but for an amount that is small. So if we count all these transactions and assume they are all T-bills, that would mean that Tether holds 1.34 percent of the outstanding T-bills, albeit a large portion for one company.
What about the article’s comparison with foreign holding companies? The total market value of foreign holdings of all government bonds has fallen in recent years and as of the first quarter of 2024 stood at $8,114.9 billion (32.8 percent of total government debt). Foreign governments at the time owned less than half the amount of government bonds abroad: $3,815.0 billion, of which only $267.0 billion were Treasury bills of all denominations. The US does not provide an individual country breakdown of the amount of foreign government versus private assets to ensure the confidentiality of individual holders. But Germany’s holdings of all government bonds, both government and private, amounted to $90.2 billion. [Source: U.S. Treasury Department, “Table 5: Major Foreign Holders of Treasury Securities.] That amounts to just 0.37 percent of the national debt, or 1.13 percent of the debt abroad. That puts Germany behind eighteen other countries in its holdings of US government bonds as of the first quarter of 2024. So it appears that the article’s statement that “Tether is now the 18th largest holder of US government bonds” compared Tether’s holdings , and not with domestic debt holders, but only with foreign holders.
Here is the Wikipedia entry on Tether.
Jeff writes: “This is not to deny that Tether has become a revolutionary and useful part of the financial system. It is essentially a digital bank, with fractional reserves in the form of fiat dollars, but with most of its assets in the form of financial investments. It issues what can be described as digital notes or deposits that are more liquid than regular bank deposits, especially for cross-border transactions and transactions with other cryptocurrencies. Tether therefore offers services that traditional banks cannot offer due to government regulations.”