GENIUS OR NOT? / MACLEOD FINANCE

GENIUS or not?

The GENIUS Act could be very good for gold, as I explain. And the anti-CBDC bill making its way through Congress will kill off the entire CBDC movement, not just in the US. 

ALASDAIR MACLEOD

The GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) establishes a legal framework for regulating stablecoins. 

Currently valued at a $240bn total, stablecoins are used in crypto payments, remittances, and cross-border payment solutions. 

Other uses are expected to evolve.

Let us be clear: with regulation comes respectability. 

The financial community will embrace GENIUS as a marketing opportunity, but perhaps not in a way you might think.

Clearly, the crypto market has grown rapidly, and nothing worries a government more than having an unregulated payment system. 

Having been in denial over crypto and CBDCs, the USG is now embracing reality, and the GENIUS act will be followed by further legislation; the Clarity Act (moving regulatory oversight of crypto away from the SEC and toward the Commodity Future Trading Commission [CTFC], and the Anti-CBDC Surveillance State Act which will ban the Fed from issuing its own CBDC.

It was only a matter of time before the USG legislated to bring cryptocurrencies under its control. And it is doing this by regulating payments.

Will GENIUS lead to more stablecoins?

We can also be sure that commercial banks support GENIUS, which can be expected to expand significantly in the coming years. 

The great thing, from both the banks and the government’s point of view, is that by legislating that a US$ stablecoin is fully backed by dollar cash and near-cash such as T-bills, minimal bank capital is required and US$ stablecoins could evolve into a significant source of short-term funding for the US treasury if future demand for stablecoins grows.

A bank can issue its own stablecoins alongside normal checking accounts, and delight of delights for the bank that is, GENIUS prohibits the payment of interest. 

By backing its stablecoins with T-bills, it creates a return currently of 4.35% on 3-month T-bills, with almost no expense. 

Instead of creating credit by lending money into existence, the bank acts as a bank of deposit.

No wonder banks like it. 

And no wonder the US treasury loves it too, given that selling long maturity bonds is challenging. 

But unlike expanding credit by lending it into existence, it is difficult to see who would take up a bank’s stablecoins, when perfectly good ones such as tether already exist.

In short, the theory is fine, but the reality is likely to disappoint. 

The prospects for pure currency stablecoins are tied to those of cryptos. 

Otherwise, they compete with conventional deposits. 

If JPMorgan issued its own $ stablecoins, this new activity would have to compete with JPMorgan’s dollar deposit accounts. 

And since its premium dollar-deposit offers 3.6% for a $50,000 minimum, why buy JPM stablecoins?

Perhaps more interesting could be the issue of hybrids comprised of gold and stablecoins.

For example, say an investment package consists of stablecoin and gold on a 50-50 basis. 

It could be promoted as a hedge against having a pure dollar deposit account as part of a depositor’s asset diversification. 

The promoting bank keeps the T-bill interest on half the stablecoins it issues, which pays for the bullion storage fees and gives the issuer a tidy profit.

In this way, GENIUS opens up the possibility of innovative marketing techniques by banks and other financial institutions.

Probably more important than GENIUS is the Anti-CBDC Surveillance State Act which prevents the Fed from issuing a CBDC.

I have long held the view that commercial banks do not want to see central banks competing with them by issuing CBDCs directly to the public. 

In the US’s political system many congressmen and senators benefit from their election expenses being funded by banks, which are sure to take the view that a good politician is one who when bought stays bought. 

Therefore, this bill is sure to be enacted.

Given the dollar’s status as the King Rat of fiat currencies, this anti-CBDC act is likely to become a mortal blow for the global CBDC movement. 

And surely, that is a very good thing.