The Intriguing Timing of the Stablecoin Bill Amid US Debt Pressures and Monetary Policy Disputes

In the current context of massive US debt pressures and heated disputes between Trump and Federal Reserve Chair Powell over monetary policy, the timing of the GENIUS stablecoin bill's advancement is thought-provoking. On May 19, 2025, the US Senate passed the procedural motion for the GENIUS stablecoin bill with a vote of 66-32. On the surface, this appears to be a technical legislation aimed at regulating digital assets and protecting consumer rights. However, a deeper analysis of the underlying political and economic logic reveals that this may be the beginning of a much more complex and far-reaching systemic change.

The US Debt Crisis: A Catalyst for Stablecoin Policies

During the pandemic, the US embarked on an unprecedented money-printing mode. The Federal Reserve's M2 money supply soared from $15.5 trillion in February 2020 to the current $21.6 trillion, with a growth rate that jumped from 5% to 25%, peaking at 26.9% in February 2021. This easily surpassed the growth rates during the 2008 financial crisis and the high-inflation period of the 1970s and 1980s.

Meanwhile, the Federal Reserve's balance sheet ballooned to $7.1 trillion, with $5.2 trillion spent on pandemic relief, equivalent to 25% of GDP. This amount exceeds the combined cost of the 13 most expensive wars in US history.

In short, the US printed an additional $7 trillion over two years, planting a massive "super bomb" for future inflation and debt crises.

The US government's debt interest expenditure is setting historical records. As of April 2025, the total US national debt has exceeded $36 trillion. In 2025, the estimated amount of national debt principal and interest due for repayment is about $9 trillion, of which approximately $7.2 trillion is for the maturing principal alone.

Over the next decade, the US government is projected to pay $13.8 trillion in interest. The proportion of national debt interest expenditure in GDP is rising year by year. To repay the debt, the government may need to further increase taxes or cut expenditures, both of which will have negative impacts on the economy.

Trump vs. Powell: The Interest Rate DisputeTrump: Fire If No Rate Cut

Trump urgently needs the Federal Reserve to cut interest rates for very practical reasons: high interest rates directly affect mortgages and consumer spending, posing a threat to his political prospects. More crucially, Trump has always used the stock market performance as his report card. The high-interest-rate environment has suppressed further gains in the stock market, directly threatening the core data that Trump uses to showcase his achievements.

Moreover, the tariff policy has led to increased import costs, which in turn have raised domestic price levels and added to inflationary pressures. A moderate rate cut can offset some of the negative impacts of the tariff policy on economic growth, ease the trend of economic slowdown, and create a more favorable economic environment for re-election.

Powell: No One Cares

The Federal Reserve's dual mandate is full employment and price stability. Unlike Trump's decision-making based on political expectations and stock market performance, Powell strictly follows the Fed's data-driven methodology. He does not make predictive judgments about the economy but assesses the implementation of the dual mandate based on existing economic data. When either inflation or employment goals are at risk, targeted policies are introduced to remedy the situation.

In April, the US unemployment rate was 4.2%, and inflation was basically in line with the long-term target of 2%. As long as the potential economic recession caused by policies such as tariffs has not yet been reflected in the actual data, Powell will take no action. He believes that Trump's tariff policy "is likely to at least temporarily push up inflation," and "the inflationary effects may also be more persistent." Under these circumstances, a premature rate cut when inflation data has not fully returned to the 2% target could make the inflation situation worse.

Furthermore, the independence of the Federal Reserve is a crucial principle in its decision-making process. The Fed was established to ensure that monetary policy decisions are based on economic fundamentals and professional analysis, considering the long-term interests of the entire national economy, rather than catering to short-term political demands. Faced with pressure from Trump, Powell insists on defending the Fed's independence, stating, "I never ask to meet with the president, and I never will."

The GENIUS Act: A New "Greenfield" for US Debt Harvesting

Market data has fully demonstrated the significant impact of stablecoins on the US debt market. Tether, as the largest stablecoin issuer, net purchased $33.1 billion of US Treasury bonds in 2024, making it the seventh-largest buyer of US Treasury bonds globally. According to Tether's Q4 2024 report, its holdings of US Treasury bonds have reached $113 billion. Circle, the second-largest stablecoin issuer, has a USDC market value of about $60 billion, which is also fully backed by cash and short-term Treasury bonds.

The GENIUS Act requires that stablecoin issuance must maintain a reserve ratio of at least 1:1, with reserve assets including short-term US Treasury bonds and other dollar-denominated assets. With the current stablecoin market size reaching $243 billion, a full integration into the GENIUS Act framework would generate a demand for hundreds of billions of dollars' worth of Treasury bond purchases.

Benefits

• Direct Financing Effect: For every $1 of stablecoin issued, theoretically, $1 of short-term US Treasury bonds or equivalent assets must be purchased. This directly provides a new source of financing for the government.

• Cost Advantage: Compared to traditional Treasury auctions, the reserve demand for stablecoins is more stable and predictable, reducing the uncertainty of government financing.

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

• Regulatory Premium: By controlling the issuance standards of stablecoins through the GENIUS Act, the government effectively gains the power to influence the allocation of this vast pool of funds. This "regulatory arbitrage" allows the government to advance traditional debt financing goals under the guise of innovation while bypassing the political and institutional constraints faced by traditional monetary policies. US Treasury Secretary Besant explicitly stated at the White House Crypto Summit that stablecoins will be used to ensure the global dominance of the US dollar.

Drawbacks

• Risk of Monetary Policy Being Politicized: Large-scale issuance of US dollar stablecoins essentially gives Trump a "money-printing right" to bypass the Federal Reserve. This can indirectly achieve the goal of stimulating the economy through rate cuts without confronting Powell directly. When monetary policy is no longer constrained by the central bank's professional judgment and independent decision-making, it can easily become a tool for politicians to serve short-term interests. Historical experience shows that politicians often tend to stimulate the economy through monetary easing to gain voter support while ignoring long-term inflation risks.

• Implicit Inflation Risk: When users spend $1 to buy stablecoins, it appears that the money has not increased. However, in reality, $1 in cash has turned into two parts: $1 of stablecoins in the users' hands + $1 of short-term Treasury bonds purchased by the issuer. These Treasury bonds also have quasi-monetary functions in the financial system—high liquidity, can be used as collateral, and banks use them to manage liquidity. In other words, the original monetary function of $1 has now been duplicated into two parts. The effective liquidity of the entire financial system has increased, pushing up asset prices and consumer demand, and inflation will inevitably face upward pressure.

• Lessons from the Bretton Woods System: In 1971, facing insufficient gold reserves and economic pressures, the US government unilaterally announced the decoupling of the dollar from gold, completely changing the international monetary system. Similarly, when the US government faces an aggravated debt crisis and excessive interest burden, there is likely to be a political motivation to decouple stablecoins from US Treasury bonds, ultimately leaving the market to pay the bill.

DeFi: An Amplifier of Risks After issuance, stablecoins are highly likely to flow into the DeFi ecosystem—liquidity mining, lending collateral, various farming, etc. Through a series of operations such as DeFi lending, re-collateralization, and investment in tokenized Treasury bonds, risks are amplified layer by layer.

The restaking mechanism is a typical example. Assets are repeatedly leveraged across different protocols, with each additional layer adding more risk. If the value of the re-collateralized assets plummets, it may trigger a chain of liquidations and market panic selling.

Although the reserves of these stablecoins are still US Treasury bonds, after multiple layers of DeFi nesting, market behavior has become completely different from that of traditional Treasury bond holders. Moreover, this kind of risk is entirely outside the scope of traditional regulatory systems.