US Financial Reform Compared to the Free Banking Era, According to Alex Brummer
The Genius Act, a significant piece of legislation aimed at establishing a comprehensive federal framework for dollar-pegged stablecoins, has cleared the U.S. Senate with bipartisan support as of June 20, 2025. This bill, currently making its way to the House of Representatives, represents a significant step forward in federal stablecoin legislation.
If passed, the Genius Act would open the door for major tech companies like Meta to issue stablecoins, blurring the traditional lines between public money (central bank money) and private money issued by corporations. The legislation sets up a two-tier regulatory system, with stablecoin issuers exceeding $10 billion in circulation being supervised at the federal level by regulators such as the Federal Reserve, OCC, and FDIC. Smaller issuers would remain under state regulatory regimes, provided those states meet minimum standards.
The Act also aims to eliminate "wildcat" or unregulated stablecoins by making it illegal to issue stablecoins without approval in the U.S. Regulators would have significant enforcement powers, including civil penalties of up to $100,000 per day and the ability to shut down unauthorized stablecoin issuers.
From a central banking perspective, the Act could free up over $200 billion in bank subsidiaries, potentially increasing activity in Treasury markets. However, the Federal Reserve intends to prevent stablecoins from competing too directly with traditional bank deposits, preserving the core role of banks in the monetary system.
For traditional banks, the Act presents both opportunities and challenges. It provides regulatory clarity that could enable banks to participate more easily in the stablecoin ecosystem. However, many banks currently lack the infrastructure and expertise to engage with digital assets, meaning there will be a significant catch-up period. There is also concern from community banks that stablecoins could cause deposit migration away from traditional bank deposits, affecting local lending and financial stability.
Critics warn that the Genius Act could privatize aspects of money issuance, outsourcing dollar dominance to large private tech firms and creating systemic risks. The Act does not clearly resolve how the reserves backing stablecoins will be regulated, raising concerns about potential financial instability or "doom loops."
In a hypothetical scenario, the circulation of numerous stable coins in the 21st-century United States could lead to confusion and uncertainty among merchants. The US could potentially have dozens of stable coins issued by companies like Walmart, Amazon, and Starbucks. A stable coin, tethered in some way to the dollar, could also be issued by federally insured banks such as JP Morgan Chase.
The Genius Act, if passed, could potentially allow any person or business with surplus funds to open their own bank and issue their own stable coins, similar to the situation in the 1800s when some US states issued their own bank notes. However, this raises concerns about the control of monetary policy and the protection of banks from failure.
The outcome of the Genius Act has been compared by Berkeley economics professor Barry Eichengreen to the Free Banking Era between 1830 and the US Civil War. Enthusiastic backing for crypto currencies, despite their susceptibility to fraud, is part of the mantra. The BIS also notes that crypto assets, hidden in secret wallets, facilitate illicit use.
The passage of the Genius Act by MAGA Republicans in Congress has raised concerns about the potential chaos that could ensue. Caution may be disregarded due to the deeply ingrained distrust of elites in American culture. The Bank for International Settlements in Basel has warned against the rise of stable coins linked to the dollar, arguing they should not be permitted to become part of the global monetary system.
In conclusion, the Genius Act, if passed, would establish a federally recognized regulatory framework for stablecoins, enabling major tech companies to issue stablecoins legally, and granting regulators strong oversight powers. While this could foster innovation and mainstream adoption of stablecoins, it also poses significant challenges and risks for the central banking system and traditional banks, potentially reshaping the monetary landscape in the U.S.
- This Senate-passed bill, the Genius Act, could initiate investments in stablecoins by major tech companies like Meta, reshaping the business landscape, as it sets up a regulatory system for stablecoin issuers.
- The Act, if passed, might encourage banks to invest in the stablecoin industry, as it provides regulatory clarity, but they may face challenges due to the need for infrastructure and expertise in dealing with digital assets.
- The financial industry may also see a shift with the Genius Act, as it could allow banks to issue their own stablecoins, similar to the bank note issuance in the 1800s, potentially blurring the lines between traditional finance and banking.
