Today, the U.S. Senate passed the Guiding and Establishing National Innovation for US Stablecoins Act or the GENIUS Act or the Act with bipartisan support for enactment of a comprehensive regulatory framework for private businesses (non-bank issuers) and subsidiaries of depository institutions (e.g., banks) to design and issue cryptocurrencies (payment stablecoins) that are fully backed by liquid assets including U.S. Dollars, short-term Treasury bills or bonds, government issued money-markets, Central Bank reserve deposits, or other similar government assets so that the stablecoins maintain their value. The goal is to create a digital currency that is more (perhaps even far more) stable than the volatile Bitcoin that can be used for paying for goods and services.
Unlike banks that are required to maintain certain level of capitalization to meet their deposit obligations, cryptocurrency issuers are not bound by such requirements which has resulted in devastating losses. The Act will require the non-bank issuers to maintain certain capital and liquidity levels and implement measure to manage their financial risks and be able to meet the demands of the holders of stablecoins. Further, the Act will require regular disclosures of the outstanding issued stablecoins and the composite of the reserve assets that support the value of the stablecoins certified by executives of the issuer. Issuers must also adopt strict marketing standards that will not mislead consumers.
A non-bank issuer will be treated as a financial institution and will be subject to the Bank Secrecy Act and must comply with all of its anti-money laundering provisions. A payment stablecoin is not a security or a commodity but it is not fiat money either (a government issued currency such as Dollar or Yen)—for the moment, it is simply a digital asset.
For three years after the enactment of the Act, foreign issuers will be prohibited from offering stablecoins in the United States. Thereafter, if the Dept. of Treasury determines that a country has comparable financial regulations, it can enter into a reciprocal treaty to permit such issuers from that country to offer stablecoins in the United States.
Even though banks have been enabled to hold digital assets for their customers since 2020, very few American banks have engaged in this business. A handful of fintech and online-only banks are engaged in investments in cryptocurrencies. Out of the traditional mega-banks, only two banks are involved in digital asset business. It remains to be seen whether in the time it takes for the Act to pass the House, and for regulations to be drafted, approved, and enacted, traditional banks will rise to the challenge or non-bank innovators continue to dominate the market.