Congress and President Trump Move to Regulate Digital Currency
Congress and President Donald Trump have made significant strides towards the regulation of digital currencies with the recent enactment of a series of bills. Last week, Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly referred to as the GENIUS Act. This legislation sets forth a regulatory framework specifically for stablecoins, a type of cryptocurrency anchored to stable assets. Industry leaders have lauded the new law, asserting it positions the United States to take a leading role in the digital finance sector. However, some economists remain skeptical about its potential to transform consumer interactions with digital assets as claimed.
Positive Reception from Industry Leaders
“The enactment of the GENIUS Act marks a crucial advancement toward establishing a solid regulatory environment for the digital asset sector in the U.S.,” remarked Paolo Ardoino, CEO of Tether, a prominent cryptocurrency firm, in a statement. “This presents an opportunity for the U.S. to reclaim its leadership in digital finance by endorsing open networks and programmable currencies. Stablecoins are now integral to global markets, facilitating access to the dollar, improving cross-border transactions, and enhancing financial stability.”
Legislative Momentum in Digital Finance
The GENIUS Act is just one of several legislative efforts reflecting lawmakers’ commitment to creating rules governing digital finance. Recently, the House also approved two additional bills related to cryptocurrency: the Digital Asset Market Clarity Act and the Anti-CBDC Act. These bills must also receive Senate approval to take effect. Aaron Klein, a senior fellow at the Brookings Institution, commented that these legislative actions signal to consumers that cryptocurrencies are a permanent fixture in the financial landscape. “The government’s implicit and explicit support for cryptocurrency, particularly with the president’s personal financial interests, sends a powerful message to the American public, who may see this as an endorsement without fully understanding the implications,” Klein stated.
Key Provisions of the GENIUS Act
The GENIUS Act grants the government authority to regulate the licensing and operational permissions for stablecoin companies wishing to operate within the U.S. It also empowers federal regulators to impose penalties, including fines and imprisonment, for non-compliance. Companies intending to issue stablecoins must possess adequate capital reserves and adhere to rigorous reporting and auditing standards. As U.S.-regulated stablecoins are mandated to be backed by either the dollar or U.S. Treasury bills, this could enhance global access to the dollar. Joshua Robert Hendrickson, an economics professor at Ole Miss, noted that this legislation might create a new market while also fostering a latent demand for U.S. government debt, which could have implications for borrowing costs.
Setting the Stage for Broader Adoption
Christian Catalini, founder of the MIT Cryptoeconomics Lab, expressed optimism about the GENIUS Act, stating, “While no legislation is flawless, this represents a solid foundation for mainstream adoption to commence. Future modifications will likely emerge as we better understand the law’s strengths and shortcomings.” The act also opens the door for licensing beyond traditional financial institutions, allowing fintech companies to obtain permission to issue stablecoins. “I anticipate a surge of participation from banks, fintechs, and digital wallets in the U.S. market,” Catalini added. “Foreign fintechs and neobanks may also seize this opportunity to broaden their services in the U.S.”
Concerns About Foreign Companies and Standards
Klein raised concerns regarding how federal regulators will handle foreign entities under the GENIUS Act. He argued that the legislation may lack sufficient safeguards to ensure that foreign companies, such as Tether, adhere to the same auditing standards as their U.S. counterparts. “One significant drawback of the GENIUS Act is the provision allowing certification to an American standard regarding the accuracy and quality of the audited financial statements of stablecoin issuers,” Klein explained. “The real test for the GENIUS Act will emerge in how auditing is managed for foreign-issued stablecoins like Tether, which does not utilize U.S. auditing standards.”
Skepticism About Impact on Payment Systems
Klein remains doubtful that the adoption of stablecoins will significantly enhance America’s payment systems. Countries like Brazil, Mexico, England, and Japan have already implemented real-time bank transactions for years, while the U.S. has had the Expedited Funds Availability Act since 1987, aimed at accelerating the availability of deposited funds. “Stablecoins are not necessary for real-time payments,” Klein asserted. “What is needed is a Federal Reserve that prioritizes the needs of the working class, something we haven’t seen for decades. Instead, the Fed has focused on maximizing bank profits from overdraft fees rather than ensuring people have timely access to their funds.”
Effectiveness of the New Legislation in Question
Klein warns that the mere passage of the GENIUS Act does not guarantee its success. The onus lies with federal regulators to develop and implement effective policies. Historical precedents show that execution can falter, leaving consumers vulnerable. He cited the Home Ownership and Equity Protection Act, which was enacted in 1994 to protect consumers against predatory lending but was inadequately enforced, contributing to the subprime mortgage crisis and the resulting Great Recession. “In 1994, Congress mandated the Federal Reserve to oversee subprime mortgages, but they failed to act,” Klein noted. “Alan Greenspan concluded that regulation was unnecessary, and we all know how that turned out.”
Legislative Developments Regarding CBDCs
The Anti-CBDC Surveillance State Act aims to prevent the Federal Reserve from issuing a central bank digital currency (CBDC). The Fed has been evaluating the potential advantages and disadvantages of a CBDC following an executive order by former President Joe Biden in 2022. Representative Tom Emmer, R-Minn., who sponsored the bill, expressed concerns that a digital dollar issued by the Federal Reserve could lead to consumer tracking. “Unlike decentralized digital assets, a CBDC is a government-issued digital currency that could allow for surveillance and control of Americans’ transactions,” Emmer explained, warning that this could infringe on personal privacy.
Debating the Necessity of a Centralized Digital Currency
Hendrickson argued that a centralized digital currency addresses a non-existent issue. “Proponents of a central bank currency often cite the unbanked population as a justification,” he noted. “However, the primary reason many individuals lack bank accounts is a distrust of banks, making it unlikely they would trust a central bank.” He emphasized that people value their privacy and may not be willing to sacrifice it for the sake of a digital currency. The U.S. Treasury Department has urged ongoing examination of a government-issued digital dollar, emphasizing the need for innovation to be approached with caution. “The concept has been marketed as a technological advancement, but no new technology is required,” Hendrickson concluded. “Simply granting broader access to existing systems does not constitute progress.”
Further Regulatory Framework for Cryptocurrency
Similar to the GENIUS Act, the Digital Asset Market Clarity Act seeks to establish a regulatory framework for cryptocurrency by defining oversight responsibilities and clarifying what qualifies as a digital commodity. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) would share oversight duties. The SEC would oversee cryptocurrencies offered as investment products, particularly those included in investment contracts. Hendrickson pointed to the high-profile failures of Silicon Valley Bank in 2023 and the unfolding FTX scandal as catalysts for the urgent need for regulatory measures. “Previously, cryptocurrency regulation was primarily reactive, with consequences revealed only when the SEC pursued enforcement actions,” he remarked. “The FTX collapse prompted both lawmakers and industry stakeholders to advocate for a structured regulatory framework to prevent similar issues in the future.”
