Stablecoins: Amundi’s Startling Warning on the GENIUS Act’s Threat to Dollar Dominance

Stablecoins are often championed as a digital bridge to traditional finance, promising stability in the volatile world of cryptocurrencies. Yet, what if the very legislation designed to regulate them could inadvertently destabilize the global financial order? Europe’s largest asset manager, Amundi, has issued a stark warning: the proposed US GENIUS Act, intended to regulate stablecoins, might ironically undermine the long-standing dollar dominance in global finance.

Decoding the GENIUS Act: A Double-Edged Sword for Stablecoins?

The US Senate recently passed the GENIUS Act on June 17, pushing it closer to becoming law. This pivotal legislation aims to bring clarity and regulation to the rapidly expanding stablecoin market by establishing clear reserve and capital requirements. On the surface, this sounds like a positive step towards legitimizing digital assets and fostering innovation. However, Amundi’s Chief Investment Officer, Vincent Mortier, sees a potential pitfall, stating, “It could be genius, or it could be evil.”

The core of the GENIUS Act’s approach is the requirement that dollar-backed stablecoins must be fully collateralized with assets of equal or greater value. While this provision is designed to ensure stability and trust in these digital currencies, Mortier argues it could send an unintended message: that “the dollar is not that strong.” By explicitly requiring stablecoins to prove their backing, the Act might inadvertently highlight a perceived weakness in the unbacked fiat dollar, potentially prompting a search for alternatives.

Amundi’s Alarming Outlook: Will Stablecoins Undermine Dollar Dominance?

For decades, the US dollar has reigned supreme as the world’s reserve currency, facilitating international trade and acting as a safe haven. This undisputed dollar dominance is a cornerstone of American economic power. Amundi’s concern is that the very act of promoting regulated, dollar-backed stablecoins could create a powerful, digital alternative that competes with the traditional greenback rather than reinforcing it.

Mortier’s warning extends beyond just the perception of dollar strength. He points out that companies issuing these stablecoins could effectively become “quasi-banks.” This transformation would thrust them into a regulatory and operational role they were never designed for, potentially introducing systemic risks into the financial system. The implications are significant, as these entities would manage vast sums of collateral, influencing demand for assets like US Treasury bonds, but without the full regulatory oversight and safety nets of traditional banking institutions.

The Ripple Effect: How the GENIUS Act Could Reshape Global Payments

The rise of regulated stablecoins, spurred by legislation like the GENIUS Act, has profound implications for the intricate web of global payments. If stablecoins become widely adopted for international transactions, as many anticipate, they could streamline cross-border transfers, reduce costs, and increase efficiency. However, Amundi’s Mortier cautions that this rapid evolution could also “potentially destabilize the global payments system.”

The Bank for International Settlements (BIS) has also expressed skepticism about stablecoins’ ability to function as reliable money without strict limits. Their stance underscores the complex challenge of integrating these digital assets into existing financial frameworks without creating new vulnerabilities. The tension lies between fostering innovation and maintaining the stability and integrity of a system that underpins trillions of dollars in daily transactions.

Stablecoin Market Growth: A Snapshot

Despite the warnings, the stablecoin market continues its explosive growth. Here’s a quick look at its trajectory:

• Total value in circulation: Surpassed $250 billion.
• Growth since early 2023: Nearly doubled.
• US dollar-pegged assets: Account for 98% of the market.
• Projected market size by 2030 (Scott Bessent): $3.7 trillion.
• JPMorgan analysts’ forecast: Supply to double again in the coming years.

This rapid expansion is attracting significant interest from tech giants. Companies like Apple, Google, and Elon Musk’s X are reportedly exploring the possibility of issuing their own stablecoins, indicating a broad industry shift towards integrating these digital currencies into mainstream services.

Beyond Stablecoins: Boosting Real-World Assets (RWAs) and Tokenization

While Amundi highlights potential risks, others see significant opportunities stemming from the GENIUS Act, particularly for Real-World Assets (RWAs) and the broader tokenization movement. Stablecoins are inherently a type of RWA, as they are backed by tangible assets such as government bonds and fiat currencies. This backing makes them a crucial component in the burgeoning field of tokenization, which aims to represent ownership of physical and financial assets on a blockchain.

Abdul Rafay Gadit, founder of ZigChain, believes the GENIUS Act could provide substantial positive momentum for this sector. He states that the legislation “de-risks the use of digital dollars in tokenized ecosystems, making it far easier to build compliant RWA platforms with embedded onchain settlements.” This regulatory clarity is vital for sectors like real estate, trade finance, and sukuk issuance, where the ability to securely and compliantly transfer tokenized assets can unlock unprecedented efficiency and liquidity.

The Great Debate: Risks vs. Rewards

The debate surrounding the GENIUS Act and its implications for stablecoins and dollar dominance is multifaceted. On one side, there are concerns about systemic risk, the potential erosion of the dollar’s global standing, and the blurring of lines between traditional finance and new digital entities. On the other, proponents envision a future of more efficient, transparent, and accessible financial systems, driven by regulated stablecoins and the tokenization of RWAs.

Key Considerations Moving Forward:

• Regulatory Balance: How can lawmakers foster innovation without compromising financial stability?
• Global Cooperation: Given the international nature of stablecoins and global payments, what role will cross-border regulatory frameworks play?
• Market Evolution: Will stablecoins truly become an alternative to the dollar, or will they simply enhance its digital reach?
• Technological Adoption: How quickly will mainstream companies and consumers embrace stablecoins for everyday transactions?

A Critical Juncture for Global Finance

The GENIUS Act represents a critical juncture for the future of digital currencies and global finance. While it promises to bring much-needed regulation to the burgeoning stablecoin market, Amundi’s warning serves as a powerful reminder of the complex, often unpredictable, consequences of legislative action in rapidly evolving technological landscapes. The interplay between regulatory intent, market dynamics, and geopolitical considerations will ultimately determine whether this “genius” move truly strengthens the financial system or inadvertently reshapes the very foundations of dollar dominance and global payments.

As the GENIUS Act moves to the House of Representatives, all eyes will be on how policymakers navigate these intricate challenges, aiming to harness the potential of stablecoins and Real-World Assets while safeguarding the stability of the global economy.