The spring meetings of the International Monetary Fund and the World Bank are usually dull events that quickly fade into oblivion. But this year was not the case. The heads of several central banks returned from the meeting quite frightened. The reason is the specter of the stablecoin law, known as GENIUS. This law is soon to be adopted by the US Congress, following the presidential order on the formation of strategic reserves of cryptocurrencies that Donald Trump announced on March 6.
Central bankers have largely seen cryptocurrencies as a nuisance, fortunately lacking the capacity to seriously disrupt the monetary systems they govern. But it seems that Trump’s team has now decided to make dollar-pegged stablecoins part of a new strategy to overhaul the global monetary system (which will, incidentally, bring wealth to the top boss and his family).
Central bankers are particularly concerned about the deeper implications of such policies. It is a calculated and chaotic dismantling of the monetary order established in the 20th century, when central banks were the sole architects of the monetary system. While GENIUS introduces the possibility of trading privately issued stablecoins, a new law is being prepared that would prohibit the US Federal Reserve from issuing its own digital currency (CBDC), effectively declaring virtual money owned by private corporations as the new guardian of dollar hegemony.
This is not an innovation. It is a hostile takeover of the money supply. In the absence of serious legal regulation, stablecoins will be neither stable nor acceptable as a simple alternative to dollar payments. They are a Trojan horse for the coming privatization of money.
The European Central Bank is aware of the dangers. As securities migrate to the blockchain, tokenized bonds, shares, and derivatives will create the need for a corresponding settlement system. The solution offered by the European Central Bank is a digital euro. This would ensure that public money remains the foundation of the financial system. But this has so far been opposed by German and French private banks. Now the ECB has another, bigger headache: by banning CBDCs and giving the green light to stablecoins, the United States has gone in the opposite direction. The Trump team is not only rejecting public digital money, but is also leaving the maintenance of the dollar’s supremacy to the darkest forces within big tech companies.
The irony is grotesque. The same libertarians who demand the abolition of the state apparatus are now begging the state to accept their stablecoins as de facto official currency. Worse, private issuers are demanding access to the Federal Reserve’s balance sheet in order to use the central bank’s reserves as collateral for their currencies. Imagine a world in which Tether, Circle, or Musk’s X Token receives implicit support from the U.S. Treasury Department despite operating outside the confines of banking law. That’s not just regulatory arbitrage—it’s monetary feudalism.
Let's not forget that America lived in a monetary dystopia of sorts in the 19th century. Thousands of private banks issued their own banknotes, and frequent bouts of financial panic left the public, and especially the working class, with piles of worthless paper in their hands. Even JP Morgan felt threatened by such a system. That's why he forced the federal government and other bankers to establish the Federal Reserve as a public institution with the task of stabilizing the value of money.
Now the United States is going back in time—taking the rest of the world with it. In a stunning reversal on January 23, Trump issued an executive order to strengthen American leadership in digital financial technologies, describing dollar-backed stablecoins as a tool to “promote and protect the sovereignty of the U.S. dollar.” GENIUS (the final version of which has not yet been released) is a recipe for a new era of the financial wild west, in which stablecoins—pegged to the dollar but controlled by private actors—will flood the global economy with digital pseudo-dollars. Private stablecoins have no chance of maintaining a link to the dollar once they are officially approved by federal authorities and their value skyrockets. Even countries that abandon the dollar will be trapped in its digital shadow.
Europe is resisting. The ECB recognizes the existential threat and is trying to introduce a “girosanct CBDC” as soon as possible: a digital euro for institutional transactions that will function as a checkpoint – a quick and dirty hybrid version of a system that connects traditional payments and blockchain infrastructure. Such a solution should buy us time until a granular settlement system is established, when the resistance of private bankers who profit from the status quo is overcome.
But by then it may be too late. While Europe is struggling with committees, the United States is taking action. The Markets in Crypto Assets Regulation (MiCA) has already kicked Tether out of Europe – not because the regulation is too strict, but because the EU’s political leadership still doesn’t understand what the stakes are. If stablecoins become the default currency on crypto exchanges, in decentralized finance, and in the accompanying emerging economy, the European Central Bank’s half-finished digital euro will arrive on the battlefield when the war is already lost.
Developing countries face a difficult choice. Already suffering the damage of dollar dominance, they must now decide whether to ban stablecoins (and lose access to crypto capital flows) or create their own versions and try to compete with the network effects that favor the dollar system. The third and least attractive alternative is to surrender to a new—and even more dangerous—form of de facto dollarization.
The only central bank that planned ahead was the People's Bank of China. With the luxury of its own, already functioning digital yuan, the PBOC can afford to refuse to make stablecoins official and simply ban them.
But even then, a major dilemma remains unresolved: China's public and private institutions hold accumulated savings of approximately $4,5 trillion. Should we get rid of these reserves, thus giving impetus to the Trump team's plans to devalue the dollar, or is it better to hold on to them and suffer the turbulence that Trump so skillfully creates?
In the long run, the bifurcation of the monetary system will lead to deepening geopolitical and geoeconomic uncertainty. Two parallel monetary systems – one based on public money issued in China, India, and perhaps the eurozone, and the other using private money, with the increasing dominance of stablecoins pegged to the dollar – would inevitably clash. The people sitting in central banks are not the only ones who should be afraid.
(Project Syndicate; Peščanik.net, translation: Đ. Tomić)
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