GENIUS inspiration
The world should follow Trump’s lead on stablecoins
With the right rules, innovation could flourish
A large golden coin with a dollar sign on its face, radiating light like the sun / Illustration: George WylesolAmerica’s new law on stablecoins is so good, “They named it after me,” joked President Donald Trump as he signed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act on July 18th.
While the administration and the crypto industry celebrate the dawn of a golden age, the mood across the Atlantic is darker.
Stablecoins, tokens backed by conventional assets, are seen as scammy, deeply destabilising—or both.
Andrew Bailey, governor of the Bank of England, has warned commercial banks against issuing their own coins.
Christine Lagarde, head of the European Central Bank (ecb), cautions that stablecoins could become private money that risks one day dislodging central banks.
In fact, the rest of the world should swallow its doubts and follow America.
Stablecoins hold out the potential for much-needed innovations in the world’s payment systems.
If they are regulated well—as the genius Act promises—that dream has a chance to be realised.
Make no mistake, crypto is rife with scams.
Many coins are a get-rich-quick scheme—and one in which the president, his family and friends have all flagrantly indulged.
Mr Trump’s holdings of $TRUMP, a “meme coin” magicked out of thin air, are worth $1.9bn.
Stablecoins are different.
Not only are they typically backed by liquid dollar assets, including short-term Treasuries and bank deposits, they could also turn out to be genuinely useful.
Dollar stablecoins gained attention in countries such as Turkey and Nigeria, where trust in the government is low and fears about runaway inflation and expropriation linger.
In the West they have largely operated in the unregulated shadows.
By requiring issuers to be registered and setting out clear rules on reserve requirements and disclosures, the genius Act should pave the way for more experimentation in America.
The prize could be large.
Because stablecoin transactions are recorded instantaneously on digital ledgers, the technology allows retail and cross-border payments to be settled in minutes rather than days, and to be completed at a fraction of the fee charged by banks and card issuers.
An international wire costing more than $15 or a credit-card fee of up to 2% of the transaction’s value could be replaced by a stablecoin transaction costing less than ten cents.
According to Standard Chartered, a bank, the issuance of stablecoins could rise from around $260bn to $2trn by 2028; Stripe, a fintech firm, is thought to be considering issuing its own tokens.
Does such promise justify the risks?
Many regulators, especially in Europe, worry that the answer is no.
They fear that stablecoins could displace central-bank money, cripple the banking system and increase the danger of destabilising runs.
However, some of these risks are overblown and, as America’s new law shows, others can be mitigated.
Take first the threat of competition with central banks.
The worry is that “private”, less-safe money could undermine the public sort.
It is likely to be felt most by the ecb, which has been laying the groundwork for a digital euro since November 2023, partly in order to challenge the dominance of Visa and Mastercard, two American financial giants.
But stablecoins will continue to be fully backed by assets denominated in public money.
There is no reason why the central bank should have a monopoly over payment innovations if a euro stablecoin could prove more useful.
What of the risks to commercial banks?
The worry is that stablecoins will pull deposits from lenders, raising their cost of funding and narrowing their scope to lend to the real economy.
Yet stablecoins will not vaporise deposits so much as move them around.
Money will flow from a customer’s bank to the stablecoin issuer.
It will either be stashed in the issuer’s bank account, or used to buy government debt.
As the state in turn spends the cash, it will pay its workers and suppliers, returning money to bank deposits.
Moreover, banks themselves stand to gain business from stablecoins’ Big Bang if they start managing issuers’ reserves or issuing coins of their own.
A run on a huge stablecoin issuer, meanwhile, could cause disruption if it leads to a fire sale of assets, rather as a run on money-market funds caused havoc in 2008.
But this danger could be mitigated by ensuring that stablecoins are fully backed by safe, liquid assets, and submit regular disclosures on their holdings—precisely as the genius Act sets out to do for any domestic issuer.
But it is better for entrepreneurs to try and fail, than for regulators to set today’s system in stone and stop promising innovations from being pursued at all.
Time to take inspiration from Mr Trump’s genius Act.
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