Americans have an abundance of payment mechanisms available to them, including cash, debit cards, credit cards, and others. Although inflation has eroded purchasing power, by world standards, the U.S. dollar remains a bastion of stability and credibility. In this menagerie, stablecoins and cryptocurrency remain niche payment products for many Americans.
The relative novelty of digital assets is reflected in the current heated Beltway debate between policy wonks and industry experts. So why should everyday Americans care about legislation like the GENIUS Act (enacted last year to create a regulatory framework to facilitate stablecoin adoption) or the Clarity Act, which got one step closer to becoming law yesterday, for crypto? Because even though use today is not yet ubiquitous, the stakes are huge — nothing short of the United States’s future global financial leadership and civil liberties for all Americans.
Today’s stablecoins have come a long way from early cryptocurrencies (such as Bitcoin), and stablecoins were pure digital money backed by nothing tangible. Today, virtually all stablecoins are backed by some tangible, convertible asset. Overwhelmingly, that convertible asset is some U.S.-dollar-denominated asset, such as short-term Treasury bonds or insured bank deposits. Overall, more than 99% of all stablecoins in circulation worldwide are backed by dollar-based assets, with Euro- and Yen-backed assets comprising less than 0.5% each.
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Stablecoins and other cryptocurrencies are here already and are expected to grow rapidly in the near future. According to a recent survey, 27% of Americans say they have already used stablecoins for purchasing or investing. But the generational numbers are striking. While only 2% of baby boomers and 14% of Gen Xers have used stablecoins, 42% of Generation Z say they have.
The implications of getting policies right are heightened because the adoption of USD Coin is even higher in the rest of the world. This is especially the case in developing countries, where populations do not trust their local currencies.
In Latin America, for example, U.S. stablecoins have become institutionalized as part of their financial infrastructure and account for 7.7% of regional GDP transactions. In Africa, it’s 6.7% and, according to research, the majority are everyday people using stablecoins for ordinary payments and savings, not speculation. In short, through stablecoins, we are quietly and quickly dollarizing the world economy and providing an important counterweight to China’s global economic influence.
Through the spread of dollar-based stablecoins, the U.S. is therefore expanding its economic and financial power worldwide, effectively enabling the rest of the world to invest in the United States. When we dominate the global digital economy, the benefits of stablecoins are not just for the rest of the world — they flow to Americans as well.
But this rapid expansion requires market structure and clarity. Without U.S. leadership and growth, this sector will come to a screeching halt. That’s why the Clarity Act, the product of nearly a year of negotiations, is essential. Lawmakers have worked diligently to strike the right balance of implementing guardrails to protect consumers without heavy-handed bureaucracy that would stifle this exciting financial innovation. Senators’ diligent, bipartisan efforts to reach such a compromise are likely why both Democrats and Republicans voted in the Banking Committee yesterday to advance the bill to the full Senate.
Throughout the process, however, legacy financial institutions worked assiduously against the Clarity Act, moving goalposts, skipping negotiations, and earlier this week, complaining that negotiations were happening publicly instead of behind closed doors. The bank lobby has made it clear that tanking the compromise negotiated in Clarity is their goal because legitimizing digital currency would cut into their own profits and market power. As we’ve seen with the debate over open banking and fintech innovation, many of these big banks simply want to use their lobbyists and trade associations to strangle competition. But the crypto ship has sailed, and experts and even skeptical lawmakers suggest the banks have already gotten the overwhelming majority of what they wanted in negotiations. The White House team, which has led good-faith discussions and brought all parties to the table throughout negotiations, also grew weary of the bank lobby’s eleventh-hour bait-and-switch.
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Privately-issued, dollar-backed digital currencies offer the best of both worlds: the ability to spread the influence of the dollar around the world while providing a buffer against the overwhelming presence of the regulatory state to weaponize the payments system to punish political opponents and disfavored speech.
The Clarity Act represents an opportunity for a major bipartisan win on an issue of critical importance to our financial system and our position in the world. The bank lobbyists have telegraphed that they’re not giving up their stall tactics as this bill moves to the Senate floor. But any further delay would in effect surrender American leadership in the next era of global financial innovation, risking our economic and national security. The yearlong negotiations have produced measured legislation that balances stability, security, and structure, with room for innovation and growth. Senators should pass the Clarity Act as quickly as possible.
Todd Zywicki is a law professor at George Mason University’s Antonin Scalia Law School and co-founder of the Institute for Consumer Financial Choice. From 2020-21, he was chairman of the Consumer Financial Protection Bureau Taskforce on Federal Consumer Financial Law.