If you grew up thinking the government provides the money, that’s probably because governments have monopolized money provision for your lifetime. Now is a good time to reorient yourself to money, which will have a variety of issuers and offerers. It will have good and bad qualities for your interests as a consumer and citizen. The GENIUS Act’s passage, providing a federal framework for stablecoins, invites a look at one newly approved money offering.
To review, a “stablecoin” is a form of money that has some of the qualities of cryptocurrency, such as rapid, internet-style borderless transacting. Stablecoins have centralized issuance and management, which makes them quite distant from the decentralized technology that spurred their creation. And unlike open cryptocurrencies such as Bitcoin, the value of any stablecoin is pegged to other assets, such as the US dollar. A dollar stablecoin is as stable as the US dollar, an irony that many people miss.
Inflation resistance is just one of the dimensions of money I assessed in a post on the value of Bitcoin a dozen years ago. Others include intrinsic value, transferability, acceptance, cost to transfer, deflation resistance, surveillance resistance, seizure resistance, and security (i.e., theft resistance).
The GENIUS Act gives stablecoins notable qualities along a couple of these dimensions. One is a complex, not entirely predictable interplay between cost and inflation resistance. The other is quite clear: GENIUS stablecoins will be horrible on privacy.
The status quo in money and payments is slow and expensive. Stablecoins should improve speed. But the price and costs of transferring funds should be interesting. The amount you pay to send stablecoins will probably be about zero. Stablecoin issuers will get a high return—and consumers the short end—another way.
Back to the basics, stablecoin issuers will take dollars (mostly, probably) and hold them in approved assets, such as Treasury bonds. In exchange, they will issue their dollar stablecoins to customers, or “holders.” The statute requires that holders lose in the process.
Here’s the math. An issuer of a billion dollars in stablecoins that puts it in three-month Treasuries will make over $40 million per year at current rates. They cannot pass any of that along. The GENIUS Act prohibits stablecoin issuers from paying holders “any form of interest or yield.”
Consider the wonders for consumers if the value of their stablecoin holdings automatically rose. But that would put stablecoin issuers in a competitive squeeze to reward holders, and it would threaten the traditional banking business model. By denying benefits to consumers, GENIUS mutes competition for the old banking industry and the new stablecoin industry.
The statute also seems well designed to lock out broader competition. Public companies that are not predominantly engaged in financial activities may not issue stablecoins without unanimous approval of a “Stablecoin Certification Review Committee.” Good luck getting that.
GENIUS becomes a way for our country to dip a toe into crypto-like features, with administration by existing financial services companies, under a guarantee of supranormal profits. Mark me down as unenthusiastic.
The alternative around the world is central bank digital currency (CBDC). The knock on CBDCs in the US has been the privacy consequence of government-issued digital money, assumed to move financial privacy from the frying pan to the fire. In a 2023 report entitled The Values of Money, former Commodity Futures Trading Commission Chairman Christopher Giancarlo and I argued that any US CBDC should counter the authoritarian model for digital money, preserving privacy and security, economic liberty, free speech, and autonomy for users. That was one tack.
The other tack was simply to reject a CBDC. When the House of Representatives passed GENIUS, it also passed the Anti-CBDC Surveillance State Act. Whew! Problem solved (should the Senate pass it)! No surveillance state through the money.
Except for one thing. GENIUS subjects stablecoin issuers to every jot and tittle of the Bank Secrecy Act. They have to do all the lamentable surveillance on the government’s behalf that the traditional financial services industry does. (And I have lamented it several times. A favorite article calls financial surveillance the world’s least effective policy experiment.)
I’ve not seen anything like the privacy objections that were aimed at CBDCs, but GENIUS stablecoins will just as surely move financial privacy from the frying pan to the fire. Same with control of your money. GENIUS requires that stablecoin issuers have “procedures to block, freeze, and reject” transactions.
Oh—but it’s the private sector doing it? Mark me down as nonplussed.
There is one strand of hope in GENIUS. The statute calls for a study of “anti–money laundering innovation.” That is an understated admission that financial surveillance policy is questionable. I have already broached the answer, and I hope to offer more.
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