Amundi Warns GENIUS Act Could Undermine US Dollar Dominance

Amundi, Europe's leading asset manager, has raised significant concerns over the potential impact of the US GENIUS Act on the global financial system. The GENIUS Act, which aims to establish a regulatory framework for US dollar-pegged cryptocurrencies, has sparked worries about the possibility of destabilizing the global payment system. Amundi warns that an increase in dollar-backed stablecoins could lead to a major shift in money flows, potentially undermining the US dollar's dominance and causing widespread financial instability.

The GENIUS Act, passed by the US Senate and expected to be approved by the House of Representatives, has left other countries concerned about a wave of 'dollarization' of economies. This could occur if their own populations buy into these stablecoins, leading to a significant outflow of capital from local currencies. Amundi's concerns are rooted in the potential for these stablecoins to create an alternative to the US dollar, which has long been the global reserve currency. The widespread adoption of stablecoins could erode the dollar's status, leading to a more fragmented and less stable global financial system.

Amundi's warnings come at a time when the US dollar is already facing pressure from various factors, including tariff policies, rising debt concerns, and expectations of interest rate cuts. The GENIUS Act could exacerbate these issues by introducing a new layer of uncertainty and volatility into the global financial markets. The potential for stablecoins to destabilize the global payment system is a significant concern, as it could lead to a loss of confidence in traditional financial institutions and currencies.

The GENIUS Act promotes the purchase of US treasuries, requiring companies to hold US treasuries as collateral for stablecoins. This could lead to a surge in demand for US treasuries, potentially driving up their prices and lowering yields. However, it could also create a new source of risk for the US financial system, as the stability of stablecoins would be closely tied to the performance of US treasuries. If the value of US treasuries were to decline, it could lead to a loss of confidence in stablecoins and a potential run on the banks that issue them.

Amundi's concerns highlight the need for careful consideration of the potential consequences of the GENIUS Act. While the act aims to create a regulatory framework for stablecoins, it could also have unintended consequences that could destabilize the global financial system. It is essential for policymakers to carefully consider the potential risks and benefits of the GENIUS Act and to take steps to mitigate any potential negative impacts.

Vincent Mortier, Chief Investment Officer at Amundi, noted that promoting a stablecoin could create "an alternative to the US dollar" that might further weaken its strength. The bill, officially supported by the White House and Vice President Vance, seeks to mandate full collateralization of dollar-backed stablecoins. This change might increase demand for US Treasury bonds, bolstering institutional flows. However, there are concerns about stablecoin issuers transforming into "quasi-banks." Expert Christian Catalini from MIT suggests that these changes set the stage for stablecoins to become mainstream.

Immediate effects on markets include potential shifts in the regulatory landscape and debates on the GENIUS Act's impact on dollar-backed stablecoins. Key players like Tether and Circle could face heightened scrutiny, while assets such as ETH and BTC might experience indirect effects due to stablecoin liquidity changes.

The GENIUS Act represents a significant federal move on stablecoin regulation with broad legislative backing. The act could alter traditional financial systems and introduce new roles. Historical precedents reveal parallels with previous stablecoin regulatory efforts, raising questions about future implications.

Given the evolving regulatory environment, the market may experience shifts in stablecoins' mainstream adoption and liquidity flows. The ongoing dialogue among industry leaders highlights a growing emphasis on ensuring stability while navigating new financial landscapes. Data and historical trends support the notion of a potential shift and challenge traditional banking structures.