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The signing of the GENIUS Act by President Trump marks a breakthrough for the crypto industry. While the Federal Reserve has cautiously welcomed this push toward privately issued stablecoins central banks in the rest of the world haven’t forgotten the shock of Libra and aren’t yet ready to loosen their control of money.
The Act creates a legal framework for stablecoins: those designed to maintain a stable value relative to the asset(s) they are tied to, and which are used as a means of payment or settlement. This could pave the way for a swathe of new stablecoins issued by US banks and big tech firms, expanding the market rapidly from its currently small, non-systemic, base to something much more significant.
or wider context on how digital asset markets are maturing and what that means for financial services - read ‘After the winter comes spring: the maturing digital asset market’
But beneath the momentum lies a deeper unease among central bankers, many of whom still view stablecoins not as tools of innovation, but as threats to financial and monetary stability. Their scepticism is shaped by Facebook’s 2019 launch of Libra: a moment that fundamentally altered the global regulatory trajectory on digital currencies.
When Facebook (now Meta) announced Libra in 2019 (designed to be a global digital currency backed by a basket of fiat currencies and issued by a Switzerland-based association) central banks saw red. Despite assurances that Libra would be tightly governed and responsibly launched, it triggered an immediate and coordinated backlash.
For central banks, Libra was not just a digital asset. It was a privately issued currency backed by a corporate giant with global reach and billions of users. It raised the spectre of currency substitution, weakened control over capital flows, and a potential shift in monetary sovereignty away from the state.
The pushback was swift. The Bank for International Settlements hauled the Libra leadership in for questioning in front of an auditorium of the world’s top central bankers and regulators. G7 finance ministers warned of systemic risks, regulators in the US and EU demanded greater scrutiny, and Facebook was forced to rebrand Libra as Diem and scale back its ambitions, before finally abandoning the project entirely.
The legacy of Libra still shapes policymaking today. It was the catalyst for the EU’s Markets in Crypto-Assets (MiCA) Regulation, and it hardened central bankers’ views that digital money, especially when privately issued and denominated in foreign currencies, needs to be strictly controlled to ensure that it does not replace central bank money.
To understand how governments are reshaping crypto oversight and why regulation has tightened since Libra, see ‘Regulating crypto’
Fast forward to 2025, and the US has taken a very different (and more supportive) tone. The GENIUS Act authorises stablecoin issuance by federally regulated institutions. It prohibits interest-bearing coins, and mandates one-to-one reserve backing – both of which are in line with the rules of other key jurisdictions. Alongside the Act the US is legislating to ban the development of a US central bank digital currencies (CBDC), which the Fed is privately relieved about. This represents a legislative embrace by the US of privately issued stablecoins as part of the future of payments and a strategic endorsement of dollar-backed digital assets.
Trump’s support is partly political, reflecting the influence of a crypto-friendly donor base, but perhaps more importantly it is also driven by geopolitics. Dollar-denominated stablecoins, including Tether and USD Coin, already dominate the global market. Giving them a clear legal foundation is seen by some in Washington as an essential mechanism to cement the dollar’s role in the digital economy and future-proof dollar dominance, at a time when others are promoting CBDCs (e.g. EU and China) or stablecoins denominated in their domestic currencies (South Korea).
But this political enthusiasm is not shared by central banks. Andrew Bailey, Governor of the Bank of England and now Chair of the Financial Stability Board (FSB), has warned against stablecoins being used for wholesale settlement and has expressed doubts about their benefits for the payments system. Across jurisdictions, central banks remain sceptical, worried not only about systemic risk but about ceding control over the monetary system itself.
The divide is now visible in the design of new regulatory frameworks. The EU’s MiCA, shaped in the post-Libra environment, includes thresholds above which stablecoins will be designated as “significant” (and subject to more intense regulation), strict authorisation requirements, and limits on the use of non-euro stablecoins in domestic payments. While in Asia and the Gulf, regulators in Singapore, Hong Kong, and Dubai have all finalised stablecoin regimes, but each with safeguards to protect local currencies. Dubai, for example, allows dollar stablecoins within the crypto ecosystem but prohibits their use in the real economy, reserving that for AED-backed tokens.
The same underlying concern runs through all these regimes: foreign-denominated stablecoins, even well-regulated ones, can challenge capital controls, displace local currencies, and undermine the state’s role in the monetary system.
These tensions are already becoming evident in the wholesale space. Bailey has made clear his opposition to stablecoins being used for wholesale settlement, instead positioning a wholesale CBDC as a natural evolution of existing forms of central bank money. Support for such solutions is not a quirk unique to the UK, but instead an early manifestation of central bank opposition to allowing private stablecoins into the plumbing of the financial system.
For a deeper look at the case for and against CBDCs and why central banks see them as the future of public money - read ‘Central bank digital currencies – who needs them?’
Large-scale stablecoin issuance could also create challenges for government bond markets. USD stablecoins typically invest in short-dated Treasury bills and notes. Sustained demand could compress short-end yields, while inflationary pressures lift long-end yields, potentially steepening the curve over time. In a stress scenario, a “run” on stablecoins (i.e. large-scale redemptions) could trigger mass selling of Treasuries leading to significant market disorder (similar to UK pension funds selling gilts during the Liability-Driven Investment (LDI) crisis). We understand the Fed are closely evaluating these potential risks.
There are also more functional challenges if stablecoins proliferate without sufficient interoperability. How effective, efficient and stable would payments be in a world with multiple stablecoins? Users may face a jigsaw puzzle of payment complexity which could end up complicating rather than facilitating trade. If standardisation is needed, who will provide this? If major banks enter the space, their gravitational pull may be irresistible. But that could cause its own challenges reminiscent of the US 19th Century “free banking” era where each bank issued its own currency that traded at varying rates to one another.
Stablecoins are firmly on the policy agenda, with most major jurisdictions now having rules in place. Regulators are converging around core principles: focusing on issuance and custody, ensuring reserves are secure, and preventing the payment of interest. The GENIUS Act brings the US into alignment with this trend.
But beneath that alignment are two fundamentally different visions. Legislators and industry advocates see stablecoins as a tool for innovation and competitiveness. Central banks, informed by the Libra experience, see them as a potential usurpation of the state’s control over money.
If adoption grows and major US financial and tech players issue their own retail stablecoins, we expect this latent tension to become more visible. Outside of the US, we may see increased restrictions on foreign-denominated stablecoins, heightened scrutiny of cross-border flows, and stronger advocacy for central bank-led alternatives.
For now, stablecoins have political momentum. But central banks are unlikely to cede ground without a fight.
This blog was written by Flint Director, Adam Hendry, Associate Director, Conor Sewell and founder and CEO, Michael Pedroni, of Flint Global’s US partner agency Highland Global Advisors. Adam and Conor support financial services clients in the UK with a focus on fintech and digital assets.
Michael is a former senior US official who has an extensive network in the US government at both official and political levels. He founded Highland Global Advisers in 2024, and currently advises a range of US companies on political strategy and government engagement.
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