The dollar goes digital

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MARY REICHARD, HOST: Coming up next on The World and Everything in It: Congress and crypto.

For the first time the U.S. government has passed a law regulating the crypto-currency market.

NICK EICHER, HOST: When the president signed that sweeping crypto bill into law, advocates praised it as a way to help American business compete. But critics fear it hands too much power to the wrong players.

WORLD’s Mary Muncy reports.

CSPAN, DONALD TRUMP: This could be perhaps the greatest revolution in financial technology since the birth of the internet itself.

MARY MUNCY: Last month, President Donald Trump signed legislation on stablecoins that’s a form of cryptocurrency that’s backed by a stable currency like the U.S. dollar.

TRUMP: The GENIUS Act provides banks, businesses, and financial institutions a framework for issuing crypto assets backed one-for-one with real U.S. dollars, treasury bills, and other cash equivalents.

The bill says any company that issues stablecoins must hold enough assets in reserve to cover the digital currency. It also clarifies which financial laws they’re subject to.

It passed with bipartisan support. Lawmakers were worried other countries were beating the U.S. in regulating stablecoins, and that international businesses might start using other country’s currencies to back their transactions instead of the dollar.

TRUMP: It’s really strengthening the dollar and giving the dollar great prominence.

Large banks like Citigroup and Bank of America are planning to launch their own stablecoins, and companies like Uber and Amazon are considering integrating them into their systems.

ARI REDBORD: US businesses have been looking for legal clarity and regulatory clarity for a long time in this space.

Ari Redbord is the head of TRM, a blockchain intelligence company.

Cryptocurrency is not like putting money on a debit card or accessing money electronically. It’s more like mining for precious minerals or metals.

A person or group will tell a computer to solve a complex math problem and record the solutions in a digital ledger called a blockchain. Then the company can trade those blocks like a less stable version of gold or silver.

In other words, crypto itself is the thing of value and is not backed by anything. Stablecoins, on the other hand, are created in the same way but are backed by a stable asset.

REDBORD: The real key to stablecoins, and why we've seen this enormous growth in the stablecoin ecosystem over the last couple of years, is they take out the volatility of Bitcoin and other digital assets and allow us to really use them.

Proponents say stablecoins can be transferred quicker than cash and are easier to send across borders. So, Redbord says the GENIUS Act will have a stabilizing effect that grows the industry. He also sees it as necessary for national security.

REDBORD: We need to leverage this technology in order to continue to have the dollar as the reserve currency. If 90-plus percent of all stablecoins are US-dollar-based, then anyone using a stablecoin today in the world is using US dollars.

Plus, some people in countries without a stable banking system are starting to use crypto. The United Nations and the International Rescue Committee also started sending stablecoins to people in Ukraine.

But not everyone believes the new U.S. regulation covers the risks.

HILLARY ALLEN: It doesn't take into take into consideration the fact that these can lose their peg and that people might panic.

Hilary Allen is a law professor at the American University, Washington College of Law.

ALLEN: Another thing we should be worried about with the GENIUS Act is that it allows the largest tech platforms to launch their own stablecoins.

She thinks this is one of the most likely outcomes of this legislation, that companies like Apple and Amazon create a stablecoin that customers can use in-app to make their lives simpler. That in itself isn’t bad. But she worries these companies will become “too big to fail.”

ALLEN And where I think that leaves us is that even if we never use stablecoins, we’ll probably be on the hook to bail them out.

The Federal Reserve says about seven percent of Americans hold any crypto, and only two percent have used it for transactions.

Allen thinks that legislators are not concerned about crypto because everyday Americans are, but because their donors are.

ALLEN: The crypto lobby is very strong with its political spending.

In the 2024 election cycle, the cryptocurrency political action committee, Fairshake PAC, contributed over half of the corporate PAC spending. That’s just under $200 million dollars, a drop in the bucket of the $15 billion dollars raised by PACs as a whole, but still it’s more than big pharma or defense.

Then last fall, Trump started his own digital assets company that distributes stablecoins. Now, his sons run it.

JENNIFER SCHULP: These types of conflicts of interest issues shouldn't be dealt with in kind of a one-off situation.

Jennifer Schulp is the Director of Financial Regulation Studies with the CATO Institute. These questions have come up with stock trading too.

SCHULP: How do we handle conflicts of interest in our both executive and legislative branches.

Schulp says these questions are important to answer, but she’s more worried that the law opens the door for the government to track crypto transactions.

SCHULP: Unlike when we use cash, and it's very difficult to tell where cash goes once you withdraw it from the bank, stablecoins live on the blockchain, and you can kind of pseudonymously track the instances of stablecoin movement from kind of cradle to grave.

Under current law, banks have an obligation to report any suspicious activity, and the GENIUS Act puts stablecoin issuers under that law as well.

Schulp says what you spend your money on says a lot about who you are, which charities and political groups you donate to, or what kinds of things you buy.

SCHULP: Having financial privacy is key for us to be able to live our lives freely, even if we're not doing anything at all that implicates illicit activity.

Schulp thinks the bill could provide the start of a framework for the market. But it’s such a new industry that it will take several tries to get it right, at the moment, there are two more bills moving through Congress that are intended to give more clarity to anyone trying to use crypto.

In the short term, Schulp thinks allowing stablecoins and crypto into the digital transactions space could be helpful. They add more competition to the market which could bring down costs overall.

Reporting for WORLD, I’m Mary Muncy.

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