July 25 (UPI) — Recent legislative actions by Congress and President Donald Trump signify a move towards the regulation of digital currencies. Last week, Trump enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly referred to as the GENIUS Act. This law sets forth a regulatory framework specifically for stablecoins, a type of cryptocurrency that is pegged to a stable asset. Many in the industry have praised the new law, asserting it positions the United States to take a leading role in the digital finance sector. However, some economists are skeptical about its potential impact on consumers. “The GENIUS Act marks a significant advancement in creating a clear regulatory landscape for the digital asset sector in the U.S.,” stated Paolo Ardoino, CEO of Tether, a leading cryptocurrency firm. “The U.S. now has a chance to reaffirm its dominance in the digital finance arena by promoting open networks and programmable currencies. Stablecoins are now crucial components of global markets, facilitating access to the dollar, improving cross-border transactions, and bolstering financial stability.”
### Legislative Context of the GENIUS Act
The GENIUS Act is part of a broader legislative effort to define the regulations governing digital finance. Additionally, the House recently approved two other bills concerning cryptocurrencies: the Digital Asset Market Clarity Act and the Anti-CBDC Act. For these bills to become law, they must receive Senate approval. According to Aaron Klein, a senior fellow at the Brookings Institution, the cumulative effect of these legislative actions signals to consumers that cryptocurrency is a permanent fixture in the financial landscape. “The government is now both passively and actively endorsing cryptocurrency,” Klein noted. “Congress’s enthusiasm, coupled with the president’s personal involvement in crypto for his financial gain, sends a strong message to the American public. Many will interpret this as a signal of approval, often overlooking the finer details.”
### Key Provisions of the GENIUS Act
The GENIUS Act empowers the government to regulate the licensing and permissions necessary for stablecoin firms to operate within the United States. It also grants federal authorities the ability to impose penalties, including fines and imprisonment, for any violations of these regulations. Companies wishing to issue stablecoins will be required to maintain adequate capital reserves to back their offerings and adhere to specified reporting and auditing obligations. From a U.S. perspective, a regulated stablecoin could enhance global access to the U.S. dollar, as it mandates backing by either the dollar or Treasury bills. “This will create a new market while simultaneously generating passive demand for U.S. government debt,” Joshua Robert Hendrickson, an economics professor at Ole Miss, explained. “In doing so, it could weaken the usual correlation between rising debt levels and increased borrowing costs.”
### Implications for Stablecoin Adoption
Experts like Christian Catalini, founder of the MIT Cryptoeconomics Lab, believe the GENIUS Act lays the groundwork for wider adoption of stablecoin. “While no legislation is flawless, this is an excellent starting point for mainstream acceptance to begin,” Catalini remarked. “I anticipate further modifications will be necessary as we uncover more about the current law’s strengths and weaknesses.” Importantly, the licensing process is not confined to conventional financial institutions; fintech companies will also have the opportunity to obtain permission to issue stablecoins. Catalini added, “I foresee significant interest from U.S. banks, fintechs, and digital wallets. This could also attract foreign fintechs and neobanks looking to expand their services in the U.S. market.”
### Concerns Over Regulatory Standards
Klein expressed uncertainty regarding how foreign entities would be regulated under the GENIUS Act. He argues that the legislation does not establish stringent enough standards to ensure that foreign companies, such as Tether, are held accountable to the same auditing criteria as U.S. firms. “A significant loophole in the GENIUS Act is the certification process for stablecoin issuers’ audited financial statements, which may not meet high-quality American standards,” Klein stated. “The effectiveness of the GENIUS Act will largely depend on how foreign-issued stablecoins, like Tether, are audited, especially since Tether does not comply with U.S. auditing standards.”
### Limitations of Stablecoins in Payment Systems
Klein remains skeptical that the adoption of stablecoins will significantly enhance the United States’ payment systems. Countries such as Brazil, Mexico, England, and Japan have long embraced real-time bank transactions, while the U.S. has historically lagged behind. The Expedited Funds Availability Act of 1987 aimed to expedite access to deposited funds, mandating that cash and electronic deposits be available by the next business day. “Stablecoins are not a requirement for real-time payments,” Klein emphasized. “What we truly need is a Federal Reserve that prioritizes the needs of working individuals, something we haven’t seen for decades. Instead, the Federal Reserve has focused on maximizing bank profits through overdraft fees rather than facilitating access to funds for the public.”
### The Role of Federal Regulators
The enactment of the GENIUS Act does not ensure its success, Klein warns. It is incumbent upon federal regulators to devise and enforce policies that effectively implement the law. Historical precedents exist where regulatory execution has faltered, leaving consumers vulnerable. The Home Ownership and Equity Protection Act of 1994 aimed to protect consumers from predatory lending by mandating federal oversight of subprime mortgages. However, more than a decade later, a surge in subprime lending contributed to the Great Recession. “Congress mandated the Federal Reserve to regulate subprime mortgages in 1994, but they failed to act,” Klein remarked. “Alan Greenspan argued that regulation was unnecessary, and we all saw the consequences.”
### Progressing Legislative Measures
The Anti-CBDC Surveillance State Act aims to prevent the Federal Reserve from introducing a central bank digital currency (CBDC). The Federal Reserve had been assessing the potential risks and benefits of a CBDC, following an executive order from former President Biden in 2022. Sponsored by Rep. Tom Emmer, R-Minn., the bill reflects concerns that a CBDC could enable the government to monitor consumer transactions. “In contrast to decentralized digital assets, a CBDC is a state-controlled currency that can be programmed and surveilled by the federal government,” Emmer explained. “Without appropriate privacy safeguards, this could give the government the capacity to track every dollar spent and every transaction made by Americans.”
### The Debate Over Centralized Digital Currency
Hendrickson pointed out that a centralized digital currency attempts to solve a problem that may not exist. “Proponents argue that a CBDC would provide access to those without bank accounts,” he noted. “However, when asked why they don’t have bank accounts, many cite a lack of trust in banks. It’s questionable why they would trust a central bank.” He added, “People generally wish to maintain their privacy.” In alignment with the GENIUS Act, the Digital Asset Market Clarity Act seeks to establish a regulatory framework for cryptocurrency. It does so by delineating oversight responsibilities and defining what qualifies as a digital commodity. The Securities Exchange Commission and the Commodity Futures Trading Commission will likely shoulder these oversight responsibilities. The SEC’s focus will be on regulating cryptocurrencies offered as investment options, especially those tied to investment contracts.
### Regulatory Necessity Highlighted by Recent Events
The urgent need for a regulatory framework was underscored by significant events such as the collapse of Silicon Valley Bank in 2023 and the FTX fraud scandal that came to light in 2022. Hendrickson remarked, “At that time, the regulation of cryptocurrency was primarily reactive, with enforcement actions taken by the SEC. One would only realize they had breached a regulation when charges were filed against them. This is not an effective regulatory approach.” The downfall of FTX served as a catalyst for both industry participants and lawmakers, emphasizing the critical need to establish comprehensive regulatory measures for the cryptocurrency sector.
