This week the Senate will vote on the GENIUS Act, which will enable banks to issue stablecoins. A similar bill on the House side, the STABLE Act, is also slowly moving towards passage. It seems the crypto industry will receive some combination of these bills – call it “A Very STABLE GENIUS” – but amendments to impose price controls on credit cards threaten to derail this necessary legislation.
Stablecoins are cryptocurrencies that are pegged to another commodity or currency, such as gold or the U.S. Dollar. They help expand access to dollar reserves or precious metal assets for retail investors, who no longer need to buy the physical commodities. Investors can also use pegged stablecoins more easily for online transactions. Dollar-backed stablecoins offer the security and frictionless ease of crypto with the faith and credit of the U.S. Dollar, but without any need for conversion.
Establishing a legal framework for stablecoins pegged to the dollar will therefore ensure the property rights of investors interested in dollar-backed cryptocurrencies. It is good policy that enjoys bipartisan support: The STABLE Act was introduced by Reps. Bryan Steil (R-Wis.) and Ritchie Torres (D-N.Y.), while the GENIUS Act was introduced by Senator Bill Hagerty (R-Tenn.) and drew the support of 14 Senate Democrats in a procedural vote before Memorial Day.
Some crypto advocates have been skeptical of both the STABLE and GENIUS Acts, preferring to leave the industry completely unregulated. Libertarian-minded Senator Rand Paul (R-Ky.), for instance, has voted against every procedural motion on the GENIUS Act so far because he opposes any regulatory framework at all for crypto.
While this makes sense in principle, stablecoins are not the same as Bitcoin – they are tied to regulated commodities and currency reserves, so investors using them are not seeking the same unregulated anonymity that other crypto products offer. A regulatory framework specific to dollar-backed stablecoins, offering clear definitions and regulatory certainty, will enable banks to issue payment stablecoins without fear of a future crackdown.
It will also ensure that the crypto industry is not displaced by any attempts at a central bank digital currency in the future. Crypto enthusiasts who rightly fear what a CBDC could mean for financial surveillance should support legitimizing dollar-backed stablecoins as a private sector alternative. Once hundreds of private banks begin to issue dollar-backed stablecoins, it will become far more difficult to displace them all with a CBDC issued by the Federal Reserve.
On the policy and the politics, everything points to the Senate’s passage of the GENIUS Act this week – but first a pair of poison pill amendments must be defeated.
Though not germane to the debate over stablecoins, amendments that would impose price controls on credit cards have been introduced by Senators Roger Marshall (R-Kan.) and Josh Hawley (R-Mo.). Votes on these amendments have been scheduled for when the Senate takes up the GENIUS Act in the coming days.
The Marshall amendment contains the meat of the infamous Durbin-Marshall Credit Card Competition Act, a bill to ban the interchange fees that card networks use to fund rewards programs and network security. According to a recent study, the CCCA “would significantly reduce revenue for community banks and credit unions and – concomitantly – reduce access to credit in smaller markets across the United States, disproportionately affecting low-income households.” Including the CCCA in the GENIUS Act would contravene its purported goal, which is to increase access to financial services.
Worse still, if adopted, this amendment would turn the GENIUS Act into a Trojan Horse for price controls. It would amount to government price-fixing that disrupts preexisting commercial contracts between card networks, banks, and merchants, and it would ultimately disadvantage smaller merchants over big box stores with the market power to negotiate favorable terms with card networks that mom-and-pop stores lack. Not content to offer an amendment that is merely not germane to the bill, Senator Marshall has proposed a poison pill that could sink the GENIUS Act entirely.
Ditto Senator Hawley. Modelled after his bill with Senator Bernie Sanders (Socialist-Vt.), the Hawley amendment would lower the federal cap on interest rates for credit cards, effectively fixing the price of credit. Again, a policy masquerading as populism would actually make it harder for lower-income Americans to access credit. If you don’t have a history of repaying loans on time, you simply won’t get a credit card anymore. Congress already learned this the hard way in the 1980s with Regulation Q interest rate caps, which “created problems for depository institutions, discriminated against small savers, and did not increase the supply of residential mortgage credit.”
Stablecoins are a good, bipartisan policy win for retail investors. Congress should say no to price control poison pills and deliver a very STABLE GENIUS for the American people.
