After a series of political power plays, the U.S. government finally rolled out the “Genius Act,” aggressively promoting stablecoins pegged to the dollar. The move aims to ease the U.S. debt crisis and expand the global influence of the dollar. This policy pushed cryptocurrency from the economic fringes into the mainstream. However, with the future of stablecoins still uncertain, America’s bold approach has sparked global concern and skepticism.
Stablecoins to Be Fully Backed by U.S. Dollar Assets
On July 18 local time, U.S. President Donald Trump officially signed the “Guiding and Establishing the National Innovation in U.S. Stablecoins Act” at the White House. Due to its acronym “GENIUS Act” sounding like the word “genius,” the bill has been widely nicknamed the “Genius Act” by the industry. According to CNBC, industry insiders have called it “the most significant event in the crypto space so far in 2025” and “the first cryptocurrency law in the history of the United States, the world’s largest financial market.” While signing the bill, Trump stated that it will “secure the dollar’s status as the world’s reserve currency,” warning that losing that status “would be as catastrophic as losing a world war.”
The GENIUS Act establishes a regulatory framework for stablecoins pegged to the U.S. dollar. According to Ma Wei, a U.S. economy researcher at the Chinese Academy of Social Sciences, the act mandates that stablecoins must maintain a 1:1 peg with the dollar. For every dollar of stablecoin issued, the issuer must hold an equivalent amount in U.S. dollars or Treasury bonds as collateral. Since both the dollar and U.S. Treasuries are backed by national credit, stablecoins tied to these assets are far less volatile than other cryptocurrencies—hence the name “stablecoins.”
The driving force behind the GENIUS Act’s urgent rollout is the looming U.S. debt crisis, which has become a flashpoint amid the government’s ongoing fiscal and monetary challenges. Ma Wei points out that a growing global distrust of the dollar and U.S. Treasuries has triggered capital outflows. By legally binding stablecoins to these assets, the U.S. aims to boost demand for Treasuries and ease its debt burden. On a broader scale, as stablecoins around the world are mostly pegged to the dollar, this move further entrenches the dollar’s global dominance and helps preserve U.S. monetary hegemony.
Bank of England Issues Warning
Supporters of cryptocurrency have welcomed the passage of the GENIUS Act, arguing that stablecoins can reduce backend operational costs and improve efficiency. Several major U.S. financial institutions have responded positively. The Wall Street Journal reports that large American banks and the payment platform Zelle are in talks to launch a joint stablecoin. Retailers—including Uber—are also exploring the idea of issuing their own stablecoins.
However, concerns around stablecoins are mounting. Local media report that under the GENIUS Act, banks, non-bank financial institutions, and credit unions are now allowed to enter the market by issuing their own stablecoins directly. According to the Financial Times, stablecoins rely on decentralized blockchain technology, making cross-border fund flows anonymous and difficult for regulators to track or quantify. This opens the door to illicit activities like money laundering and significantly complicates oversight.
NBC quoted Cory Frayer, director of investor protection at the Consumer Federation of America, who warned that the GENIUS Act effectively allows stablecoin issuers to bypass most traditional banking safeguards and self-regulate—a model that “has never ended well.” He noted: “The crypto industry is rapidly concentrating into powerful entities, while plunging into the same risks that triggered the crashes of 1929 and 2008.”
Effectively regulating hundreds or even thousands of stablecoins—issued by banks, tech giants, and crypto startups alike—is an enormous challenge. “The reason we have deposit insurance and consumer protections is because of the painful lessons of the Great Depression and the Great Recession,” said Frayer. “If the U.S. reverts to a system where unregulated entities are mass-issuing stablecoins, it’s only a matter of time before we see another financial crisis.”
Andrew Bailey, Governor of the Bank of England, echoed these concerns in a recent interview with The Times, questioning whether stablecoins can truly live up to their name. He warned global banks against issuing their own stablecoins, raising a broader issue of financial stability: if a major stablecoin breaks its peg, it could trigger a sell-off in the government bonds backing it—shaking the very core of the financial system. Central bank leaders in several countries have expressed similar fears.
The Financial Times also noted that in countries and regions with weaker financial systems, the widespread use of stablecoins could cause severe disruptions. If a crisis hits stablecoins, it could quickly spiral into a broader loss of market trust and spark mass withdrawals.
Last month, the Bank for International Settlements (BIS) issued a stark warning, stating that stablecoins have performed poorly in becoming widely usable currencies. The BIS report highlighted three key flaws: first, stablecoins lack central bank backing; second, they fail to adequately guard against illicit use; and third, they offer no credit-creating flexibility. The report concluded that the future role of stablecoins remains uncertain, and based on these shortcomings, they may be best suited to play a secondary or supportive role in the financial system.
Public Trust in Fiat Currency at Risk
The Bank for International Settlements (BIS) has warned that stablecoins could undermine monetary sovereignty and trigger capital flight from emerging economies. This concern is gaining global traction. Bank of England Governor Andrew Bailey cautioned that the rise of stablecoins could erode public confidence in national fiat currencies. Italy’s finance minister also sounded the alarm, warning that dollar-pegged stablecoins could “crowd out” the euro.
For developing countries with fragile local currencies and high inflation, the impact could be even more direct and severe. A report from Zheshang Securities noted that the current stablecoin landscape is dominated by the U.S. dollar, reinforcing dollar hegemony. The two largest stablecoins by market cap—Tether (USDT) and USD Coin (USDC, issued by U.S. company Circle)—together account for about 90% of the total stablecoin market.
In regions like Southeast Asia and Africa, many small and medium-sized businesses use dollar-backed stablecoins for cross-border remittances, bypassing traditional banking channels and the SWIFT system. This form of “informal dollarization” is accelerating the dollar’s penetration into developing economies.
Meanwhile, Hong Kong has adopted a regulatory approach sharply different from that of the U.S. In May, it officially enacted the Stablecoin Ordinance, becoming one of the first jurisdictions to legislate the use of compliant stablecoins. In a recent report, Qiu Hua, an analyst at Xiangcai Securities, noted that Hong Kong’s framework—built on “rigid reserves, criminal liability, and cross-border jurisdiction”—has created one of the world’s strictest regulatory models for stablecoins. He argues that by anchoring to an offshore RMB stablecoin, Hong Kong could position itself as a leader in Asia’s digital finance infrastructure, evolving from a “crypto hub” into a “regulated stablecoin issuance center.”
Notably, unlike the U.S. GENIUS Act—which mandates stablecoins be 100% backed by dollar assets—Hong Kong allows multi-currency reserves. This flexibility could attract issuers looking to offer non-dollar-backed stablecoins, potentially diversifying the stablecoin ecosystem.
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