Nothing like genius

Is the US becoming careless about its fiat currency? It's not such an absurd question, given the apparent indifference of the administration towards the sliding value of the Dollar, now at its lowest for three years. The President has frequently said he wants to see a weaker Dollar; he regularly flings insults at the chairman of the Federal Reserve, Jerome Powell, has said there are three or four people on his list to replace him, and has accused Powell of costing America "hundreds of billions" of Dollars by not cutting interest rates.

Valuing the Dollar is an ever-moving game, and attacking Powell may just be posturing. But waiting in the wings is a much more serious threat to the Dollar. The GENIUS Act (the Guiding and Establishing National Innovation for U.S. stablecoins Act) is the first US Bill that regulates cryptocurrencies, focusing on stablecoins. The Act legitimizes stablecoin creation by private enterprises in the US. So much else has been going on that the Bill's passage through the US Senate passed almost unnoticed.

But the longer-term implications of the GENIUS Act are troubling.

The surrogate

Stablecoins are a form of cryptocurrency that (as its name suggests) are meant to have greater stability than the general run of cryptocurrencies. They are just surrogates - their value is tethered to some other traditional asset such as the Dollar or gold. About 200 stablecoins exist around the world. They are often described as a kind of 'bridge', part cryptocurrency, part fiat money. They operate on distributed ledgers - blockchains - which track and confirm payments without the need for centralized entities such as banks, clearing houses or exchanges.

The proponents of stablecoins argue that they are faster, cheaper and more error-free than competing payments systems. They are obviously very attractive in countries with volatile fiat currencies, capital controls, or unstable banking systems. Cross-border payment settlements can be reduced from days to seconds.

In the US stablecoins are proving popular because paying by credit or debit card can be relatively expensive, because unlike many other countries, the US does not regulate credit card interchange fees (the transaction fees merchants pay to card-issuing banks) and the banks' resistance to regulate debit card fees.

Caveat Emptor

The old adage, 'buyer beware', holds true for stablecoins. In 2024 the United Nations published a report which named stablecoins as the "preferred choice" for Asian criminal groups; Chainanalysis, a blockchain analytics firm, estimates that in 2024 crime associated with stablecoins was more than $32 billion. The Bank for International Settlements (BIS) says "stablecoins have been the go-to choice for illicit use to bypass integrity safeguards... While demand for stablecoins may persist, they perform badly against the integrity test at the system level." In other words, crime is rampant in this sector.

Biggest risk

Apart from the risk to individuals who may not be protected if they invest in stablecoins, there may be systemic risk. The biggest systemic risk could be that almost $7 trillion of deposits in US commercial banks may migrate to stablecoins. Banks may opt to increase their interest rates to try to keep shrinking deposits. The GENIUS Act currently does not have strong consumer protection or thorough know-your-customer checks, although these worries may be addressed before it becomes law. But the biggest risk is that the Bill does not have any deposit insurance mechanism - taxpayers might find themselves facing huge bailouts in the future if a run on stablecoins happens. Some academics suggest that the creeping integration of crypto and traditional finance is sleepwalking into disaster.

For the individual, whether an investor or not, there is little to be gained by venturing into a stablecoin. If you wish to make rapid cross-border payments, Glint is secure and rapid. If you wish to make payments at your local grocers, Glint is simplicity itself. If you want to insulate your money from creeping devaluation, there's nothing better than using gold, with Glint. If the Dollar - or any other fiat currency - is losing its status, then you need to have gold's protection. It may not be called genius, but that's what Glint is.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.