GENIUS Act Sparks Fears of U.S. Dollar Weakening and Global Digital Dollarization

The U.S. Senate's recent passage of the GENIUS Act, which establishes oversight for U.S.-dollar-pegged crypto tokens, has sparked concerns about the potential destabilization of global money flows and the weakening of the U.S. dollar's dominance. Amundi, Europe’s largest asset manager, has raised alarms about the bill's potential consequences, warning that it could create an alternative to the U.S. dollar and lead to its weakening.

Vincent Mortier, chief investment officer at Amundi, expressed skepticism about the GENIUS Act, stating that while it requires stablecoins to be pegged to the U.S. dollar, it could inadvertently diminish the dollar’s unique global status. He cautioned that the act might backfire, leading to a situation where a country pushing a stablecoin could be perceived as pushing the message that the dollar is not that strong. This could result in a massive purchase of U.S. Treasury bonds, strengthening global dependence on the dollar and potentially triggering a new era of digital monetary warfare.

The GENIUS Act, if approved by the House of Representatives and signed into law, could lead to a significant surge in demand for these cryptocurrencies. Mortier warned that the law could induce a shift in international capital flows, with a potential move towards global digital dollarization. This shift could be driven by the fact that 98% of stablecoins currently in circulation are backed by the dollar, reinforcing the centrality of the greenback in the ecosystem. However, more than 80% of stablecoin transactions take place outside the United States, indicating a largely global usage. This could lead to a situation where stablecoins, becoming de facto “quasi-banks”, capture deposits from individuals and companies outside traditional circuits, disintermediating banking systems and weakening central banks, especially in emerging economies.

Amundi's concerns are not isolated. Several financial authorities share similar fears. Last April, a finance minister stated that the U.S. policy on stablecoins constituted “a threat even more dangerous to financial stability than the trade war led by Trump”. The Bank for International Settlements (BIS) also highlighted risks of insufficient transparency, capital flight, and loss of control over monetary policies. According to Mortier, this massive adoption could even “be perceived as an implicit message that the dollar is no longer so strong”, suggesting a symbolic erosion of the greenback’s authority as its usage becomes dematerialized through private proxies.

The future of the global monetary system could thus be partly played out on the field of crypto regulation. If the GENIUS Act establishes itself as a major milestone in the American strategy of digital financial domination, reactions show that a confrontation is looming. The law could lead to a profound reconfiguration of international capital flows, with a potential shift toward global digital dollarization. This could have significant implications for monetary sovereignty, particularly outside the United States, and could lead to a new era of digital monetary warfare.

The widespread adoption of dollar stablecoins could weaken the ability of local policymakers to regulate the economy. The root of this issue lies in the potential for stablecoins to undermine central banks' ability to conduct monetary policy. They are also becoming increasingly popular among investors, which could further complicate the regulatory landscape. The GENIUS Act may lead to a rise in stablecoins which could reduce the long-term strength of the U.S. dollar. Tech firms issuing stablecoins could also destabilize the global payments system, as warned by Amundi. The boom in stablecoins could lead to a situation where these cryptocurrencies capture deposits from individuals and companies outside traditional circuits, disintermediating banking systems and weakening central banks, especially in emerging economies.