The GENIUS Act: A Misconceived Savior of the Dollar

The recent passage of the GENIUS Act in Washington has sparked widespread celebration among crypto advocates, with many hailing it as a major victory for clear stablecoin regulation. However, this enthusiasm may be misplaced, as the Act's true impact could be far more nuanced. Rather than cementing the dollar's position as the dominant global currency, the GENIUS Act may have inadvertently provided a blueprint for other nations to develop their own digital currencies, potentially eroding the dollar's influence. The Act's regulatory clarity is undoubtedly a positive step, bringing much-needed transparency to U.S. stablecoin operations and removing uncertainty for major operators like Circle's USDC. Nevertheless, this clarity also has a downside, as it establishes a regulatory template that other countries can adapt for their own currencies, such as Japan's JPYC initiative and Hong Kong's digital currency framework. This development could lead to a proliferation of local stablecoins, each tailored to the specific needs of its respective economy, and ultimately reducing the dollar's global dominance. The GENIUS Act's focus on standardizing USD stablecoins overlooks the fundamental inefficiency that limits their global adoption: local liquidity gaps. Cross-border payments still rely on expensive and complex currency conversions, resulting in significant foreign exchange costs. A more efficient solution would be to enable direct transactions between local currencies, without the need for USD intermediation. The rise of sovereign stablecoin projects worldwide, inspired by the GENIUS Act's regulatory framework, may lead to a future where dozens of compliant stablecoins coexist, each representing a major currency and interconnected through programmable settlement layers. In this scenario, dollar stablecoins will play a role, but not necessarily a dominant one. The lesson for policymakers is clear: regulatory clarity drives innovation, while protectionist barriers become obsolete. The GENIUS Act did not guarantee the dollar's supremacy in the digital money landscape; instead, it marked the beginning of a competition to build the best infrastructure for local currency digitization, one that America can win, but only by competing on merit.