Stablecoin Wildcat-Bank Roulette: The Genius Act Gambles with America’s Money
History potentially rhymes, as Congress toys with private stablecoin currencies, and becomes an apprentice sorcerer playing with demons—or at least with financial crisis…
Down the hall from my office, Barry Eichengreen is quite annoyed:
Barry Eichengreen: The Genius Act Will Bring Economic Chaos <https://www.nytimes.com/2025/06/17/opinion/genius-act-stablecoin-crypto.html>: ‘If Donald Trump and his allies have their way in Congress, America could soon see… bank failures, personal bankruptcies and financial instability… regularly… unleash[ed]… chaos.. [from] the Genius Act… [which] would give hundreds… of American companies the ability to issue their own currencies… bypass[ing] the banking system and credit card networks.… America had a similar banking system more than 150 years ago, and it unleashed chaos and financial ruin….
[In] the Free Banking Era… sometimes the system worked, particularly in states like New York where strict regulation ensured that banks held enough assets…. But in others, those assets were sometimes all but worthless…. One estimate places the losses to Michigan residents from discounted or worthless bank notes as high as $4 million, almost half the state’s income in 1840…. Regulators have… [enough] trouble keeping an eye on insured banks, [so] how can they be expected to exercise perfect oversight of hundreds, if not thousands, of stablecoins issued not just by banks but by tech firms and crypto start-ups? The major crypto investors behind the Genius Act must know this; some of them were Silicon Valley Bank’s biggest customers….
Those are risks we are taking on by catering to crypto enthusiasts… [and others] who would in all likelihood profit substantially from issuing stablecoins with the government’s imprimatur. The arrow of history points away from the private provision of multiple kinds of money…. It seems like everything new is old again…. When Mr. Trump describes the [high-tariff] late 19th century as a time when Americans “were at our richest,” maybe someone should remind him that life expectancy was just over 40, and real income was 11 percent what it is today…
The principal senators who pushed the Genius Act through its Senate passage 68-30 appear to be Bill Hagerty (R-TN), Tim Scott (R-SC), Cynthia Lummis (R-WY), Kirsten Gillibrand (D-NY), and Angela Alsobrooks (D-MD). Its principal pushers in the House appear to be Bryan Steil (R-WI) and Rep. French Hill (R-AR), together with Tom Emmer (R-MN), Josh Gottheimer (D-NJ), Ritchie Torres (D-NY), Byron Donalds (R-FL), and Zach Nunn (R-IA). An interesting crew. Strongly opposed is Elizabeth Warren (D-MA), who usually knows what she is talking about. Also strongly opposed is Jeff Merkley (D-OR), who always knows what he is talking about. Maxine Waters (D-CA), Stephen Lynch (D-MA), Al Green (D-TX), Ayanna Pressley (D-MA), and Rep. Rashida Tlaib (D-MI) lead the opposition in the House.
But it may well be too late to stop this train.
What is my view? First, it is that Barry is right. Second, it is that everything that is good about company-issued stablecoins would be much better achieved by looking to the European Union, and following their lead in capping interchange fees. That would provide substantial savings to businesses and consumers without handing understaffed regulators a safety-and-soundness supervision burden they will not be able to satisfactorily bear.