Imprudence

Reject the Genius Act

By Steven J. Grisafi, PhD.

There is a delicate interplay between the value of the United States Dollar and the value of our United States Treasury securities: the Bills, the Notes, and the Bonds. The most direct way of recognizing this relationship is to understand that all US Treasury debentures are the promise to pay to the buyer US Dollars at some time in the future. That amount of Dollars to be paid in the future is negotiable. We measure it with the interest rate paid by the debentures. The Genius Act now seeks to introduce into that delicate equilibrium the participation of private entities that will issue their own promissory notes in the form of Stablecoins.

Why would any American seek to purchase Stablecoins? The argument is made that Stablecoins would enable the American Public to enact financial transactions worldwide near instantaneously. Who requires such a service? If one is to purchase only that which cannot be found within the 50 States one would expect transit time for the item purchased. Is an instantaneous financial transaction warranted under such circumstances? On the rare occasions upon which not-exceedingly-wealthy Americans would seek to make large purchases abroad one might expect such persons to entrust their money held in escrow with their own financial institution.

The argument is made that any such financial transaction that needed to be made beyond the borders of the United States could be made at lower cost using Stablecoins. This is desirable. But what are we sacrificing when we enable private business to set a value for the use of their particular currency, their Stablecoin, as an alternative to the use of the US Dollar directly? Any such issuer of a Stablecoin must set the use of it as a currency different from the use of the US Dollar directly. Otherwise, nobody would bother to purchase the Stablecoin. How would any such private entity entice Americans to purchase their Stablecoin? Experience has shown that the business would offer higher interest rates for the Stablecoin that the public would buy from them and maintain for them in electronic form. The Genius Act would require any such issuer of a Stablecoin to maintain reserves for 100% of the deposits kept as a combination of currency and US Treasury securities. This would be the equivalent of a money market fund. Although it is possible that a money market fund might “break the buck” doing so is unlikely. So we conclude that Stablecoins could indeed be stable with regard to their stated equivalency to the US Dollar.

Rarely will ordinary Americans require the service a Stablecoin could provide internationally. Within the borders of the United States no American would require the use of Stablecoins unless said person is unbanked, i.e., has no relationship with any financial institution. For such persons as the unbanked the Central Bank Digital Currency has been proposed as the best means to serve them. But to counter this attempt at financial inclusiveness we now see the bizarre rationalization that a CBDC would be a greater invasion of one’s financial privacy than entrusting one’s financial resources with an issuer of Stablecoins. Such proponents of the Genius Act expect the American People to place greater confidence in the ability of a cryptocurrency manipulator to secure their privacy than the United States Department of the Treasury.

What ultimately concerns me, is not the privacy issue, nor the manifest corruption implicit with the argument that a CBDC serves no purpose but that a Stablecoin does, is the inevitable tampering effect to be placed upon the currency-debenture equilibrium inherent within the central bank of the United States. Who will dare to suggest that he knows the effect upon the Federal Reserve Banks system of the United States caused by the use of alternative private currencies? It makes no difference to their disruption of the interest rate equilibrium established between United States currency and United States debentures that these alternative currencies, these Stablecoins, are pegged in value to the United States Dollar. To find purpose they must distinguish themselves as different. That difference alters the time component of the currency-debenture equilibrium. While the public holds the generally conceived naive comprehension that currency inflation results from quantity overabundance. Economists admit we truly do not fully understand the causes of inflation. The Genius Act will engender myriad alternative currencies all of which would be presented to the Public as presenting some advantage over the direct use of the US Dollar.

If one could say definitively, and I am certain anyone who would say so is a fool, that economists fully understand the delicate balance between the supply of currency and the supply of debentures maintained by the promise to pay one for the other inherent within the interest rate calculation. Then I would say a Stablecoin is as good an alternative as the Central Bank Digital Currency. But the Great Recession of 2008 stands as a stark reminder that economists have no such full understanding of the world economy. Rather than surrender the federal prerogative to mint currency in balance to our capacity to sell debt. I reject Stablecoins and choose a CBDC.

Addendum added July 16, 2025: Today I learned that the Genius Act explicitly prohibits Stablecoins from paying interest solely for being kept for storage. That prohibition eliminations much of my concern about authorization being given by the Federal government for the issuance of Stablecoins as an private alternative currency.