Sterling Death-Spiral?

Will Tether and Lutnick ride in for the rescue?

I mentioned on @SoniaPoulton’s show on Monday that part of the reason why @elonmusk and @Nigel_Farage had fallen-out might have been something to do with the dollarisation project being pursued by senior members of the Trump team - notably Howard Lutnick.

I have no insider knowledge so I have no idea if this is true. But one can hazard a guess that given Farage's close proximity to the team post-election he will have heard all sorts of crazy talk.

But I wanted to elaborate. Lutnick is close to the market dominant dollar stablecoin company, Tether. Lutnick's company, Cantor Fitzgerald, acts as a custody agent for Tether - holding vast amounts of US government treasury bonds as 'security' for Tether's dollar-denominated crypto-token. Cantor also owns about 5% of Tether stock.

Given the demand for dollars in places where the dollar is not the official currency (and between traders that need to trade in a highly liquid currency) Tether has been hugely popular. It now holds nearly $100 billion in US Treasury stock - more than the United Kingdom.

But not many people are aware that in 2022 Tether launched a Sterling stablecoin. That was hardly newsworthy at the time. But now that Lutnick is US Commerce Secretary in a new Trump administration, it's hugely significant.

It's even more significant now that the UK gilt market is stalling. Frankly, what investors would want to buy UK securities when MAGA2.0 is at full tilt? But this raises a very important question. Could it be that the next target for the dollarisation project might just be the United Kingdom?

UK gilt yields are now at a 27-year high. This could be a harbinger of a UK sovereign debt crisis. Unless, of course, Tether comes riding into the rescue to buy up lots of UK government debt.

In effect this would instantly dollarize sterling. If the UK government became highly dependent on Tether as a holder of UK securities - it may spell the end of the currency. And, of course, we'd see, in effect, the creation of a de facto central bank funded UK stablecoin pegged to the dollar - and likely to be replaced by the dollar.