US Stablecoin Bill: Exploring Its Deep Political and Economic Impacts

On May 19, 2025, the U.S. Senate passed the procedural motion for the GENIUS stablecoin bill with a vote of 66-32. On the surface, this is a technical piece of legislation aimed at regulating digital assets and protecting consumer rights, but a deeper analysis of the political and economic logic behind it reveals that this could be the beginning of a more complex and far-reaching systemic change.

In the context of the enormous debt pressure currently facing the United States, and the disagreements between Trump and Powell on monetary policy, the timing of the advancement of the stablecoin bill is worth pondering.

US Debt Crisis: Catalyst for Stablecoin Policy

During the pandemic, the United States initiated an unprecedented monetary expansion model. The M2 money supply of the Federal Reserve surged from $15.5 trillion in February 2020 to $21.6 trillion currently, with the growth rate skyrocketing from 5% to 25%. In February 2021, it even peaked at 26.9%, far exceeding the growth rates during the 2008 financial crisis and the high inflation periods of the 1970s and 1980s.

At the same time, the Federal Reserve's balance sheet has expanded to $7.1 trillion, with pandemic relief spending reaching $5.2 trillion, equivalent to 25% of GDP, surpassing the total of the 13 most expensive wars in American history.

In short, the United States has increased its issuance by 7 trillion dollars over two years, laying a huge hidden danger for subsequent inflation and debt crises.

The interest expenditure on the US government's debt is reaching historic highs. As of April 2025, the total amount of US national debt has exceeded $36 trillion, and it is estimated that about $9 trillion in principal and interest on the national debt will need to be repaid in 2025, with approximately $7.2 trillion being the principal due.

In the next ten years, interest payments by the U.S. government are expected to reach $13.8 trillion, with the proportion of national debt interest expenses to GDP rising year by year. To repay the debt, the government may need to further increase taxes or cut spending, both of which will have a negative impact on the economy.

Trump and Powell: Divergence on Interest Rate Cuts

Trump: Demand for Interest Rate Cuts

Trump is currently in urgent need of the Federal Reserve to cut interest rates, and the reason is obvious: high rates directly impact mortgages and consumption, which poses a threat to Trump's political prospects. More critically, Trump has always viewed the stock market performance as a measure of his achievements, and the high-rate environment suppresses further increases in the stock market, which directly threatens the core data Trump uses to showcase his accomplishments.

In addition, the tariff policy has led to an increase in import costs, which in turn has raised domestic price levels and increased inflationary pressure. A moderate interest rate cut can offset the negative impact of the tariff policy on economic growth to some extent, alleviating the trend of economic slowdown and creating a more favorable economic environment for re-election.

Powell: Upholding Independence

The dual mandate of the Federal Reserve is to achieve maximum employment and maintain price stability. Unlike Trump's decision-making approach based on political expectations and stock market performance, Powell strictly adheres to the data-driven methodology of the Federal Reserve. He does not make predictive judgments about the economy; rather, he evaluates the execution of the dual mandate based on existing economic data, and only implements targeted policies for adjustment when issues arise with inflation or employment targets.

The unemployment rate in the U.S. in April was 4.2%, and inflation is also basically in line with the long-term target of 2%. Given the impact of policies such as tariffs, any potential economic recession has not yet translated into actual data, and Powell will not take any action. He believes that Trump's tariff policy "is likely to raise inflation at least temporarily" and that "the inflation effects may also be more persistent." Acting rashly to cut interest rates before the inflation data has fully returned to the 2% target could worsen the inflation situation.

In addition, the independence of the Federal Reserve is a crucial principle in its decision-making process. The original intention of establishing the Federal Reserve was to enable monetary policy decisions to be made based on economic fundamentals and professional analysis, ensuring that the formulation of monetary policy is based on considerations of the long-term interests of the entire national economy rather than catering to short-term political demands. In the face of pressure from Trump, Powell insisted on defending the independence of the Federal Reserve, stating, "I never actively seek to meet with the president, nor will I ever."

GENIUS Act: A New Financing Channel for US Debt

Market data fully demonstrates the significant impact of stablecoins on the U.S. Treasury market. As the largest stablecoin issuer, a certain company net purchased $33.1 billion in U.S. Treasury bonds in 2024, making it the seventh largest buyer of U.S. Treasury bonds globally. According to the company's report for the fourth quarter of 2024, its holdings of U.S. Treasury bonds have reached $113 billion. Another large stablecoin issuer has a stablecoin market cap of approximately $60 billion, which is also fully backed by cash and short-term Treasury bonds.

The GENIUS Act requires that stablecoin issuances must maintain reserves at a ratio of at least 1:1, with reserve assets including dollar assets such as short-term U.S. Treasury bonds. The current stablecoin market size has reached $243 billion, and if fully incorporated into the framework of the GENIUS Act, it will generate hundreds of billions of dollars in Treasury bond purchasing demand.

policy advantages

1. The effect of direct financing is significant. For every 1 dollar stablecoin issued, theoretically, 1 dollar of short-term U.S. Treasury bonds or equivalent assets must be purchased, which directly provides new sources of funding for government financing.

2. Cost advantage: Compared to traditional government bond auctions, the demand for stablecoin reserves is more stable and predictable, reducing the uncertainty of government financing.

3. Scale Effect: After the implementation of the GENIUS Act, more stablecoin issuers will be forced to purchase U.S. Treasury bonds, creating a scaled institutional demand.

4. Regulatory Premium: The government, through the GENIUS Act, controls the issuance standards of stablecoins, effectively gaining the power to influence the allocation of this massive pool of funds. This "regulatory arbitrage" allows the government to leverage the guise of innovation to advance traditional debt financing objectives while circumventing the political and institutional constraints faced by conventional monetary policy.

The U.S. Treasury Secretary made it clear at the White House cryptocurrency summit that stablecoins will be used to ensure the global dominance of the dollar.

potential risks

1. The risk of monetary policy being hijacked by politics: The large-scale issuance of USD stablecoins effectively gave Trump a "money printing power" to bypass the Federal Reserve, indirectly achieving the goal of lowering interest rates to stimulate the economy. When monetary policy is no longer constrained by the professional judgment and independent decision-making of central banks, it can easily become a tool to serve the short-term interests of politicians.

2. Hidden inflation risk: When a user spends 1 dollar to buy a stablecoin, the total amount of money appears unchanged, but in reality, the 1 dollar in cash has transformed into two parts: the 1 dollar stablecoin in the user's hand and the 1 dollar short-term government bonds purchased by the issuer. These government bonds also have a quasi-monetary function within the financial system and can serve as high liquidity assets and collateral. This effectively means that the monetary function of the original 1 dollar has now split into two, increasing the effective liquidity of the entire financial system, which could drive up asset prices and consumer demand, exacerbating inflationary pressures.

3. Historical Lesson: In 1971, the U.S. government unilaterally announced the decoupling of the dollar from gold in the face of insufficient gold reserves and economic pressure, fundamentally changing the international monetary system. Similarly, when the U.S. government faces an escalating debt crisis and an excessive interest burden, there may be political incentives to decouple stablecoins from U.S. Treasuries, ultimately placing the risk on the market.

DeFi: Amplifier of Risks

Stablecoins are likely to flow into the DeFi ecosystem after issuance, participating in liquidity mining, lending collateral, various yield farming activities, and more. Through a series of operations such as DeFi lending, staking and re-staking, and investing in tokenized government bonds, risks are amplified layer by layer.

The restaking mechanism is a typical example, as it leverages assets repeatedly across different protocols, with each additional layer increasing the risk. Once the value of the restaked assets plummets, it may trigger a chain liquidation, leading to panic selling in the market.

Although the reserves of these stablecoins are still US Treasuries, after multiple layers of DeFi nesting, market behavior has become completely different from traditional US Treasury holders, and this risk is completely outside the traditional regulatory framework.

Multi-Dimensional Analysis of Policy Impact

The US Dollar stablecoin involves multiple aspects such as monetary policy, financial regulation, technological innovation, and political gamesmanship. Analyzing it from any single angle makes it difficult to fully grasp its impact. The ultimate development direction of stablecoins will depend on the formulation of regulatory policies, technological advancements, the behavior of market participants, and changes in the macroeconomic environment. Only through continuous observation and rational analysis can we truly understand the far-reaching effects of the US Dollar stablecoin on the global financial system.

However, one thing is certain: in this complex financial game, ordinary investors are likely to remain the ultimate risk bearers. Therefore, for ordinary investors, staying vigilant, analyzing rationally, and making prudent decisions will be more important than ever.