The genius act how Trump triggered a stablecoin gold rush

Financial deregulation is making a notable comeback. In the persistent hunt for stronger economic growth, even Chancellor Rachel Reeves appears to be warming to the idea. In a recent Mansion House speech, she labelled excessive regulation a boot on the neck of business, stifling the innovation necessary for prosperity. Observing Andrew Bailey, Governor of the Bank of England, during her address, it was clear he was less than convinced. Last week he reiterated to MPs that regulatory changes would remain limited, reaffirming his reluctance to unravel the reforms established in response to the global financial crisis.

The caution is not misplaced. Historical precedent links most major financial crises to periods of deregulation and so-called financial innovation. The Glass-Steagall Act in the United States, which separated retail from investment banking for decades, was only repealed at the turn of the century. Within ten years, the world was embroiled in another financial meltdown. Whether the rollback of those controls was decisive remains debated, but the episode epitomises cycles of deregulation fuelling unsustainable financial structures such as collateralised debt obligations.

Once again, the United States is dismantling systems that previously kept financial excess in check – a return to ‘light touch’ regulation. The question facing the United Kingdom: should it follow? Bailey’s concerns warrant attention, yet if the City of London is to maintain its stature after Brexit, adaptation is essential. The City has struggled to find a new sense of purpose, and the growing influence of technology could widen the gap if regulators are not forward-looking.

The European Union has blazed its own trail with the “Markets in Crypto Assets” directive, seeking to pre-empt risks and thus curbing innovation. But across the Atlantic, the approach has shifted abruptly. The Biden administration had cast crypto in a negative light, threatening regulation that would cripple the sector. The landscape shifted when Donald Trump introduced the “Genius Act”, a radical, market-led framework designed to let privately issued digital currencies – stablecoins – flourish. Estimates now indicate that the stablecoin market could leap from roughly $250 billion to more than $2 trillion within a few years.

Trump’s motivations are multifaceted. He and certain members of his administration have strong business interests in stablecoins. If successful, these ventures could become immensely valuable. The strategy also seeks to shore up the dollar’s global dominance, particularly as China and Europe hope to supplant it. Widespread adoption of dollar-based stablecoins in cross-border payments would reinforce the dollar’s place in international trade. Each stablecoin, backed on a one-to-one basis by secure dollar assets, creates further demand for US Treasuries—vital as Washington’s deficit spending demands record debt issuance.

While the Bank of England has not been idle, the speed and enthusiasm of the US pivot caught many off guard. Just a few years ago, Trump denounced Bitcoin as a scam against the dollar. Stablecoins, however, occupy a different space, now recast in Trump’s thinking as vehicles for the dollar’s internationalisation. Sterling-backed stablecoins lag far behind, largely because banks await a clear regulatory path before investing in necessary infrastructure.

Safeguarding the integrity of new digital currencies and preventing illicit use remains paramount. The Bank must ensure a pound equals a pound and that financial stability is not undermined. Industry voices maintain the current approach is too complex and costly, risking the UK’s financial centre status as other jurisdictions race ahead. Reeves may be signalling a move closer to the US line than the European one, an encouraging sign for market leaders looking for a welcoming environment. Yet tolerating the uncertainties alongside meaningful tax policy decisions will prove crucial to retaining fintech pioneers within the UK’s borders.