Dollar hegemony maintained through widespread use of stablecoins
The United States government is set to establish a regulatory framework for stablecoins, with the GENIUS Act set to take effect this summer. This bill, which has received a relatively broad consensus, aims to create a stablecoin regime primarily through federal financial regulatory institutions.
The GENIUS Act regulates stablecoins depending on their size at the federal and state levels. Notable stablecoin issuers, such as Circle's USDC, may find themselves in a favourable position, potentially becoming the regulatory winner in the US, following the EU's lead. Jeremy Allaire, CEO of Circle, has hailed the law, calling it a 'home run in Washington.'
Stablecoins, digital assets designed to maintain a stable value, must be fully backed by US dollars or highly liquid assets. Issuers must guarantee immediate redeemability and are subject to the Bank Secrecy Act, which includes laws for financial institutions regarding economic sanctions, anti-money laundering, and customer identification.
Paolo Ardoino, CEO of Tether, has commented on the law in a podcast, praising it as well-thought-out but expressing concerns about US policy regulating stablecoins as if they only operate within US borders. Tether's future actions regarding the GENIUS Act are still unclear.
The Senate could vote on this stablecoin regime as early as August. Under the law, stablecoin issuers must publish monthly liquidity reports, and reserves must be regularly publicly audited. Finance Minister Scott Bessent spoke about what the government expects from stablecoins: to ensure the US dollar remains the dominant global reserve currency.
Algorithmic stablecoins like Maker Dollar have little chance of being approved under the GENIUS Act. Tether, which backs its stablecoin USDT with a mixed portfolio including gold, bitcoin, and corporate bonds, has not yet issued an official statement on GENIUS.
The US government, along with the 'Office of the Comptroller of the Currency' and the IRS, will develop this regulatory 'stablecoin regime.' Trump's 'Crypto Czar' David Sacks said that stablecoins will enhance the international dominance of the dollar. Ardoino advocates for distinguishing between domestic and international stablecoins.
The White House held its first 'Digital Asset Summit' in March, a significant step towards the regulation of digital assets in the USA. The GENIUS Act, if passed, will provide a much-needed regulatory certainty for stablecoin issuers, potentially paving the way for a more stable and secure digital economy.
