The Senate recently passed the GENIUS Act, which would provide certainty for financial institutions to deal in dollar-backed cryptocurrencies. The House must now seize this once-in-a-generation opportunity to secure American dominance in fintech.
The diffusion of bank cards, wire payments, and peer-to-peer money transfer apps has enhanced transactional efficiency between individuals, financial institutions, and businesses. Alternatives to conventional payments and currency have gained traction in recent years, thanks to cryptocurrencies. However, some potential users are leery of the volatility of cryptocurrency.
Stablecoins emerged to address this challenge. Stablecoins are digital cryptocurrency assets pegged to the value of another asset, typically the U.S. dollar. What once began as an obscure product has boomed into a $250 billion market. Despite their increasing popularity, mainstream adoption remains a last-mile hurdle.
The lack of existing regulatory clarity around stablecoins creates uncertainty for issuers to expand services and risks ceding private sector leadership to foreign payment networks and central-bank digital currencies. The GENIUS Act’s passage rectifies that issue. The bill establishes clear, simple rules that bring stablecoins under federal oversight without veering into overregulation. It mandates basic audits of dollar reserves and aligns stablecoin issuers under existing anti-money laundering laws to prevent illicit capital flows.
A dearth of existing regulatory guidance created fears impeding stablecoin growth. The SEC under the Biden Administration expressed hostility toward cryptocurrency as evidenced by its steep increase in enforcement penalties compared to the prior administration. The Trump administration’s friendlier stance on cryptocurrency invites innovators and financial institutions to streamline stablecoin issuance into mainstream finance.
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Stablecoins will also confer geopolitical advantages if the U.S. acts to promote adoption without delay. Circulating dollars in the digital payments space will help bolster the dollar’s role in global finance as stablecoin products become increasingly popular for cross-border transactions.
Around 99 percent of stablecoins are pegged to the dollar, yet over 80 percent of transactions occur outside the United States. Reserve-backed stablecoins will undoubtedly spur demand for U.S. treasuries, which could place downward pressure on borrowing costs for consumers.
Stablecoins reduce remittance costs and other sources of cross-border payment friction. Evidence from a BIS report shows remittance volumes exhibit highly negative cost elasticity, indicating that the traditional financial system lacks competition. Alternative payment routes such as stablecoins can stimulate competition and help drive down costs for both individuals and businesses.
American businesses with international operations could realize efficiency gains by overhauling corporate treasury management using stablecoins. Clearing high-volume cross-border transactions can take several days. Stablecoin transactions, on the other hand, can execute instant transactions, circumventing normal wire fees and foreign exchange risks altogether.
As the Fintech sector grows, stablecoins stand to occupy a niche that bridges decentralized and traditional finance. The dollar-peg mechanism of stablecoins will enable customers to enjoy the benefits of cryptocurrency products with far less risk than previously possible.
As the market for stablecoins evolves, developing a robust framework for stablecoin issuance should be of paramount importance for lawmakers. American dominance in the payments space will be at risk of displacement if policymakers continue dragging their feet. Stablecoin technology should be embraced for this reason, alongside the market-transforming advantages it delivers to consumers and businesses alike.
Contrary to the fearmongering of shadow banking risks by the bill’s detractors, the GENIUS Act renders that issue moot. Stablecoin assets must be backed entirely by dollars or short-term treasury bills, which are highly liquid. The GENIUS Act’s provisions for reserve audits ensure user confidence about the product’s liquidity and collateralization.
The bill effectively insulates stablecoins from the risks posed by conventional fractional reserve banking activities, thereby setting a clear distinction between the two systems. The bill prohibits lending activity and the accrual of interest typically offered by traditional banks. Since issuers may already hold treasury bills within their reserves, the interest that issuers earn can flow through to customers in the form of savings.
The dollar-backed nature of stablecoins also discourages excessive risk-taking. A fixed-value peg to the U.S. dollar strips away the incentives to churn upside volatility that fuels speculative manias. Investors would find it unfeasible to utilize stablecoins as an instrument for leveraged and arbitrage-driven strategies.
The passage of the GENIUS Act would herald a new era in digital payments. Stablecoins promise faster settlement, lower transaction costs, and expanded consumer choice. America already leads as the world’s Fintech capital. Washington should keep it that way by greenlighting stablecoin issuers to step out of the shadows without fear of retaliation by federal regulators. Lawmakers in the House should follow the lead of their colleagues in the Senate and pass the bipartisan GENIUS Act.
Gins is a federal affairs manager at Americans for Tax Reform
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