https://www.nytimes.com/2025/05/23/opinion/trump-crypto-stablecoin.html
Crypto Is Good for Trump but Bad for America, The New York Times, By Dan Davies and Henry J. Farrell, May 23, 2025
…
Stablecoins, as their name suggests, are crypto assets guaranteed by other assets like the U.S. dollar. Mr. Trump and his sons created one called USD1 through their cryptocurrency company, World Liberty Financial. Digital currencies like stablecoins are bad enough when they could potentially be used for political self-dealing. The potential problems they pose to the mainstream financial system go deeper and are much more concerning…
Crypto interests want to break down the boundary between cryptocurrencies and regulated finance by integrating stablecoins into the regular U.S. financial system. …
Perhaps the greatest concern about stablecoins is their potential to provoke risk to the entire financial system. Because they are neither fully inside nor fully outside the traditional financial system, they present unique, grave challenges for which there are no clear answers. For example, the Genius Act’s drafters propose regular reports on their implications for financial stability. Yet they have no clear response to a critical question: Does the United States stand behind dollar-based stablecoins or not?
Specifically, if a stablecoin got into trouble or turned out to be a fraud, would it be bailed out? Doing so could create massive liabilities for U.S. taxpayers. Companies that are too big to fail are tightly regulated and supervised, and for good reason.
But not bailing out such a stablecoin would pose a new source of systemic risk for international users of the dollar system. Bank-run crises happen when no one is sure who is exposed to a cascading collapse and how badly, leading the system to freeze up as banks withdraw credit. That is why regulators demand transparency from the big players in the global dollar market… [end quote]
What is the GENIUS Act? It’s a proposal that hasn’t been enacted into law.
The U.S. Senate Committee on Banking, Housing and Urban Affairs, April 16, 2025
FACT SHEET: The GENIUS Act Protects Consumers
[Hmmm…that may or may not be a fact. – W]
At its core, the GENIUS Act is a consumer protection bill:
Payment stablecoins are a product already offered in the U.S. with little regulatory oversight.
This legislation establishes a first of its kind federal framework to regulate payment stablecoins that includes, among other things, robust reserve requirements to ensure payment stablecoins are not de-pegged and transparency into the reserves backing payment stablecoins.
The GENIUS Act establishes federal safeguards that protect stablecoin holders and enhance consumer confidence in the permitted payment stablecoin market, including requiring:
100% reserve backing with U.S. dollars and short-term Treasuries, or similarly liquid assets as determined by the primary regulator.
Monthly public disclosure of reserve composition.
Annual audited financial statements for issuers with more than $50 billion in market capitalization.
The GENIUS Act establishes strict marketing standards for payment stablecoins:
Prohibits any representation that payment stablecoins are backed by the full faith and credit of the U.S., guaranteed by the U.S. government, or covered by FDIC insurance, making it unlawful to mislead consumers about government backing or the insurance status of payment stablecoins.
Ensures that a payment stablecoin cannot be marketed in a way that a reasonable person would perceive the stablecoin to be legal tender, issued by the U.S., or guaranteed or approved by the U.S. government.
Makes it illegal to market a digital asset as a payment stablecoin unless the digital asset is compliant with the provisions of the GENIUS Act... [end quote]
Should the U.S. Senate be regulating stablecoins, which are NOT legal tender ? Like other crypto assets, stablecoins are issued by private companies and are not regulated.
Could this legislation actually increase the systemic risk from stablecoins?
I think legislation should construct a red line between stablecoin companies and the regulated banking industry. That way, a run on stablecoins would not drag down the banking system.
Wendy
