US Stablecoin Bill: Policy Changes Amid Debt Crisis

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 that regulates digital assets and protects 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 transformation.

In the context of the enormous debt pressure in the United States and the ongoing disputes between Trump and Powell over monetary policy, the timing of advancing the stablecoin bill is worth pondering.

US Debt Crisis: Catalyzing Stablecoin Policy

During the pandemic, the United States initiated unprecedented monetary expansion. The M2 money supply of the Federal Reserve soared from $15.5 trillion in February 2020 to currently $21.6 trillion, with a growth rate that once exceeded 25%, far surpassing the 2008 financial crisis and the high inflation period 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, exceeding the total cost of 13 of the most expensive wars in American history.

In short, the United States added about $7 trillion to its money supply over the past two years, laying the groundwork for subsequent inflation and a debt crisis.

The interest expenditure on the US government's debt is reaching a historical high. As of April 2025, the total amount of US national debt has exceeded $36 trillion. It is estimated that the total principal and interest to be repaid on the national debt in 2025 will be about $9 trillion, of which the principal maturing portion is about $7.2 trillion.

In the next decade, the interest expenditure of the U.S. government is expected to reach $13.8 trillion, with the proportion of national debt interest expenditure to GDP rising year by year. To repay the debt, the government may be forced to raise taxes or cut spending, which will have a negative impact on the economy.

Trump and Powell: Interest Rate Divergence

Trump: Calls for interest rate cuts

Trump is eager for the Federal Reserve to cut interest rates, and the reasons are obvious: high rates directly affect mortgages and consumption, which is not beneficial for his political prospects. More critically, Trump has always viewed stock market performance as a measure of his achievements, and a high interest rate environment suppresses further gains in the stock market, which directly threatens the core data for Trump to showcase his accomplishments.

Moreover, tariff policies have led to an increase in import costs, driving up domestic price levels and exacerbating inflationary pressures. A moderate interest rate cut could offset, to some extent, the negative impact of tariff policies on economic growth, alleviate the slowdown in the economy, and create a more favorable economic environment for re-election.

Powell: Uphold Independence

The Federal Reserve's dual mandate 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 Fed's data-driven methodology, assessing the execution of the dual mandate based on existing economic data and formulating corresponding policies accordingly.

The unemployment rate in the U.S. for April was 4.2%, and inflation is basically in line with the long-term target of 2%. Due to the effects of tariffs and other policies, a potential economic recession has not yet been reflected in the actual data, and Powell is unlikely to take action lightly. 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." Prematurely cutting interest rates while inflation data has not fully returned to the 2% target could worsen the inflation situation.

In addition, the independence of the Federal Reserve is a core principle in its decision-making process, aimed at ensuring that monetary policy is formulated based on economic fundamentals and professional analysis, 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.

GENIUS Act: New Financing Channel for US Treasury Bonds

Market data fully demonstrates the significant impact of stablecoins on the U.S. Treasury market. The largest stablecoin issuer net purchased $33.1 billion in U.S. Treasury bonds in 2024, becoming the seventh largest buyer of U.S. Treasuries globally. The second largest stablecoin issuer has a market capitalization of approximately $60 billion, also entirely backed by cash and short-term Treasury bonds.

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

Advantage Analysis

1. The direct financing effect is significant; theoretically, for every 1 dollar stablecoin issued, it requires the purchase of 1 dollar of short-term U.S. Treasury bonds or equivalent assets, providing a new source 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 bill, more stablecoin issuers will be forced to purchase U.S. Treasury bonds, creating a scaled institutional demand.

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

potential risks

1. Monetary policy is hijacked by politics: The large-scale issuance of USD stablecoins actually gives the government a "money printing power" that bypasses the central bank, allowing for the indirect achievement of the goal of stimulating the economy through interest rate cuts. When monetary policy is no longer constrained by the professional judgment and independent decision-making of the central bank, it can easily become a tool for politicians to serve short-term interests.

2. Hidden inflation risk: After users purchase stablecoins, the original $1 cash is effectively split into two parts: the $1 stablecoin held by the user and the $1 short-term government bonds purchased by the issuer. These government bonds also have a quasi-currency function within the financial system, which may lead to an increase in the effective liquidity of the entire financial system, driving up asset prices and consumption demand, and exacerbating inflationary pressures.

3. Historical Lessons: In 1971, when the Bretton Woods system collapsed, 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 motivation to decouple stablecoins from U.S. Treasury bonds, ultimately placing the risk on the market.

DeFi: Amplifier of Risks

Stablecoins are likely to flow into the DeFi ecosystem after issuance, participating in activities such as liquidity mining and collateralized lending. Through operations like DeFi lending, multi-staking, and investing in tokenized government bonds, risks are magnified layer by layer.

The Restaking mechanism is a typical example, leveraging assets repeatedly across different protocols, with each additional layer adding more risk. If the value of the restaked assets plummets, it may trigger a chain reaction of liquidations, leading to panic selling in the market.

Although the reserves of these stablecoins are still U.S. Treasury bonds, after multiple layers of DeFi nesting, market behavior has become completely different from that of traditional U.S. Treasury bond holders, and this risk is entirely outside the traditional regulatory system.

The Game of Politics and Economics

Given Trump's past behavior, it is hard to believe that promoting stablecoins is purely for the purpose of saving the U.S. economy; it is more likely a tool for his consortium to amass wealth.

The cryptocurrency project launched by the Trump family has raised at least $550 million, with most of the sales occurring after Trump won the election in November. The project has also launched a stablecoin pegged to the US dollar, attracting significant investments.

In January of this year, Trump issued a personal MEME coin, setting a precedent for a president issuing a coin, with the Trump Group controlling 80% of the token shares. Since the issuance, over 813,000 cryptocurrency wallets have lost approximately $2 billion. Trump also held a private dinner for the major holders of this coin, sparking widespread controversy.

Trump's behavior on social media has also raised questions about market manipulation. He has made suggestive statements before announcing major policy changes, leading to significant fluctuations in related stock prices and a notable increase in his personal wealth.

The US dollar stablecoin involves multiple aspects such as monetary policy, financial regulation, technological innovation, and political gamesmanship, requiring comprehensive analysis. The future development of stablecoins depends on regulatory formulation, technological advancements, the behavior of market participants, and changes in the macroeconomic environment. Only through continuous observation and rational analysis can one truly understand the profound impact of the US dollar stablecoin on the global financial system.

However, it is certain that in this financial game, ordinary investors are likely to be the ultimate payers.