Industry praises slate of crypto bills, economists unsure of promise

UPI

6 days ago

July 25 (UPI) -- Congress and President Donald Trump have taken steps toward regulating digital currency with the passage of a package of bills on Capitol Hill.
Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act and, or GENIUS Act, into law last week, establishing a framework for regulating stablecoin, a form of cryptocurrency that is backed by a stable asset.
Industry stakeholders are applauding the law, saying it will enable the United States to be a leader in digital finance. Economists are not unanimously convinced that it will be the consumer-focused game-changer it is made out to be.
"The passage of the GENIUS Act represents an important step toward establishing a clear regulatory foundation for the digital asset industry in the United States," Paolo Ardoino, CEO of pioneering cryptocurrency company Tether, said in a statement to UPI. "The U.S. now has the opportunity to reassert its leadership in digital finance by supporting open networks and programmable money. Stablecoins have become essential infrastructure in global markets, powering dollar access, enhancing cross-border settlements, and strengthening financial resilience."
The GENIUS Act is just one piece of legislation that underlines lawmakers' interest in establishing guidelines for the realm of digital finance. The House passed two more bills last week relating to cryptocurrency: the Digital Asset Market Clarity Act and the Anti-CBDC Act. Both must pass the Senate to become law.
Aaron Klein, senior fellow at the Brookings Institution, told UPI that, when considering these actions together, a signal is being sent to consumers that cryptocurrency is here to stay.
"It's something the government is passively and explicitly supporting," Klein said. "The enthusiasm by Congress and by the president personally issuing his own crypto for his own financial gain is a giant signal for the American public. Many of them will see this as a green light and won't look at the fine print."
GENIUS Act
The GENIUS Act will enable the government to regulate the licensure and permissions for stablecoin companies to offer and sell stablecoin in the United States. It also enables the federal government to enforce regulations with the use of fines and imprisonment for violations.
Companies seeking to issue stablecoin are required to have the capital to back them up. They must also meet reporting and auditing requirements.
In terms of U.S. interests, U.S.-regulated stablecoin could extend access to the U.S. dollar across the world due to its requirement that it is backed by the dollar or Treasury bills.
"What's going to happen is this creates a new market but also a passive demand for U.S. government debt," Joshua Robert Hendrickson, professor of economics at Ole Miss, told UPI. "By doing so it potentially weakens the mechanism by which rising debt tends to lead to higher borrowing costs."
The law sets the stage for broader adoption of stablecoin, Christian Catalini, founder of the MIT Cryptoeconomics Lab, told UPI.
"No bill is perfect, but this is a great starting point for mainstream adoption to begin," Catalini said. "I'm sure there will be further adjustments along the way as we learn more about the strengths and weaknesses of the current law."
Licensing will not be limited to traditional financial institutions. Fintech companies can also seek permission to issue stablecoins.
"I expect lots of entry by U.S. banks, fintechs and digital wallets," Catalini said. "Some foreign fintechs and neobanks will use this as an opportunity to expand their U.S. presence and services."
Klein said he is waiting to see how foreign companies will be treated by federal regulators. He believes the GENIUS Act does not establish strong enough guardrails to ensure that foreign companies, such as Tether, are held to the same auditing standards as U.S. companies.
"One of the big loopholes in the GENIUS Act is the ability to certify to an American standard that the stablecoin issuers' audited financial statements are accurate and of high-quality," Klein said. "The first test of the GENIUS Act will come in how the foreign-issued stablecoins like Tether are treated in their auditing. Because Tether does not use U.S. auditing standards for their account."
Klein is also unconvinced that stablecoin adoption will greatly improve America's payment systems. Real-time bank transactions have been a reality in Brazil, Mexico, England and Japan for years and in some cases decades.
The United States passed the Expedited Funds Availability Act in 1987. One of its purposes was to require financial institutions to speed up making deposited funds available. This set maximum hold periods and generally requires cash and electronic deposits to be made available within the next business day.
"You don't need stablecoins to have real-time payments," Klein said. "You need a Federal Reserve that cares about working people which we haven't seen for decades. Instead the Federal Reserve has prioritized bank profits from overdraft fees over helping people have access to their own money."
Having the bill signed into law does not guarantee its effectiveness, Klein adds. It is up to federal regulators to create and adopt policies that they will then execute. There have been instances when the execution fell short, leaving consumers exposed.
In 1994, the Home Ownership and Equity Protection Act was passed to establish consumer protections against predatory home lending practices. It called on federal regulators to regulate prime subprime mortgages. More than a decade later, the rise in subprime mortgage lending culminated in the Great Recession.
"In 1994, Congress passed a law requiring the Federal Reserve to regulate subprime mortgages and they didn't do it," Klein said. "Alan Greenspan said we don't need to regulate this market. Look how that worked out."
Bills advancing in Congress
The Anti-CBDC Surveillance State Act prohibits the Federal Reserve from issuing a central bank digital currency.
The Federal Reserve explored the potential risks and benefits associated with establishing a central bank digital currency under an executive order signed by former President Joe Biden in 2022.
Rep. Tom Emmer, R-Minn., sponsored the bill in the House. On the House floor prior to the vote, he said the impetus for the bill is a concern that a Federal Reserve-issued digital dollar would be used to track consumers.
"Unlike decentralized digital assets, a CBDC is a digital form of sovereign currency that is designed, issued, and monitored by the federal government," Emmer said. "It is government-controlled programmable money that, if designed without the privacy protections of cash, this could give the federal government the ability to surveil and restrict Americans' transactions and monitor every aspect of our daily lives. In other words, every dollar you spend, where you spend it, who you spend it with would all be visible to and tracked by the watchful eyes of Washington."
According to Hendrickson, a centralized digital currency offers a solution where there is no problem.
"One of the things that people say would be a benefit of a central bank currency, they point to the number of people who don't have bank accounts," Hendrickson said. " They say it would give greater access to FDIC services. If people don't have bank accounts, when you ask them why their number one reason is they don't trust banks. So it's unclear why they would trust a central bank."
"I don't think people want to give up that degree of privacy," he continued.
When the U.S. Treasury Department encouraged the Biden administration to continue studying the potential of a government-issued digital dollar, it highlighted the importance of innovation done carefully.
"It's kind of been sold as this technological innovation but there's no technology necessary," Hendrickson said. "Just giving more people access to their ledger is not a form of technology."
Like the GENIUS Act, the Digital Asset Market Clarity Act is meant to put a regulatory framework in place for cryptocurrency. It does so by codifying oversight responsibilities and defining what is considered a digital commodity.
Oversight responsibilities would belong to the Securities Exchange Commission and Commodity Futures Trading Commission. The SEC's role would be in regulating cryptocurrency offered as investment options, such as cryptocurrency that is offered as part of an investment contract.
The high-profile collapse of Silicon Valley Bank in 2023 and the FTX fraud scandal that began to unfurl in 2022 pushed the need for regulation to the forefront, Hendrickson said.
"At the time what was really happening was all regulation of cryptocurrency was happening through SEC enforcement," he said. "You would find out that you broke a rule when the SEC brought charges against you. That's not an effective way to regulate an industry. The collapse of FTX was a catalyst for both politicians and people in the industry to say, look, now is the time to get a regulatory framework in place for these kinds of things."