GENIUS or Folly? America's stablecoin plan risks global contagion, demands dedollarized response

Editor's note: The article, written by Warwick Powell, adjunct professor at Queensland University of Technology and senior fellow at Taihe Institute, reflects the author's opinions and not necessarily the views of CGTN. 

The US dollar has been weaponized and its global reserve status has been diluting. In an attempt to revive the dollar's status, the Trump administration is launching a significant technology-driven overhaul of the dollar system via the so-called GENIUS Act, a legal framework for the issuance of "stablecoins."

The GENIUS Act will legalize the issuance of regulated stablecoins backed by US Treasury bonds. Marketed as a financial innovation to improve global payments, the Act actually presages greater financial risk in both the US and globally with little meaningful upside. The Act in effect enables the transformation of US public debt into collateral for a new class of private money, without meaningful regulatory guardrails or public accountability.

While US policymakers celebrate the GENIUS Act as a leap forward for digital finance, the rest of the world should see it as a flashing red warning light. The Act threatens to entangle foreign holders of US Treasuries – central banks, sovereign funds and institutional investors – in a hyper-financialized, privately governed dollar ecosystem. If this system stumbles, the resulting contagion won't be confined to American shores.

Rather than deepening dependence on the dollar, non-US economies should take the GENIUS Act as a wake-up call to accelerate dedollarization. Such a move is underpinned by the imperatives of prudent risk management, monetary sovereignty and systemic resilience.

A global liquidity machine, built on public debt

The core idea of GENIUS is deceptively simple. It will allow private institutions to mint dollar-pegged stablecoins by using US Treasury bonds as collateral. These digital dollars can then circulate globally with near-instant settlement, low transaction costs and potentially programmable features.

But this structure quietly reconfigures the US and global monetary order.

US Treasuries – long held as the safest store of value – would no longer be just reserve assets. Under the GENIUS regime, they become the backbone of a private, dollar-denominated liquidity machine, outside the direct control of the Federal Reserve or Congress. This means private entities control issuance of quasi-money whereby public debt is repurposed into speculative digital finance. In doing so, a new layer of global financial interdependence emerges. Such a system is faster, more opaque and structurally fragile.

For non-US actors, the risks multiply rapidly.

Foreign bondholders: from safe asset to systemic exposure

More than $7 trillion in US Treasuries are held by foreign governments and institutions. Traditionally, these bonds were seen as neutral, liquid and apolitical. GENIUS undermines all three assumptions.

If foreign institutions allow their treasury holdings to be pledged into US stablecoin systems – either directly or through intermediaries – they become counterparties in a private shadow banking system, subject to redemption pressures and peg dynamics they don't control. They also become exposed to platform governance failures, cyber risks and even US sanctions.

Even foreign institutions that remain outside the system face indirect contagion. If a major stablecoin issuer fails, they may be forced to dump Treasuries to meet redemptions, sparking global bond market dislocations. If rates spike or platforms freeze assets, mark-to-market losses will ripple across reserve portfolios. If US geopolitical tensions escalate, Treasury-backed stablecoins could become tools of financial coercion or surveillance.

Faced with these risks, foreign bondholders are no longer just investing in US creditworthiness, they become implicit underwriters to a fragile, dollar-based digital money experiment.

The illusion of strength: Stablecoin liquidity ≠ Dollar power

Proponents of GENIUS argue that enabling stablecoins will increase dollar liquidity and reinforce the greenback's global dominance. But this is a category error. It confuses increased circulation of synthetic financial assets with actual monetary strength.

Doubtless, GENIUS will produce more "dollar-like" tokens but these are not sovereign dollars. They are private liabilities backed by time-bound collateral, governed by entities whose incentives are speculative and extractive. The "liquidity" created is not for productive exchange or trade. Rather, it is for yield farming, margin lending, tokenized arbitrage and other circuits of fictitious capital. It inflates the velocity of leverage, not the vitality of the real economy.

Rather than reinforcing dollar strength, GENIUS degrades it by undermining the dollar's role as a stable, state-guaranteed store of value. By substituting public monetary authority with fragmented private issuance and turning the dollar from a sovereign instrument into just another tokenized financial product, to be rehypothecated, speculated upon and dumped in a crisis, the dollar itself is further undermined.

Far from stabilizing the dollar system, GENIUS financializes it to the point of fragility.

A dollar deepening that breeds dedollarization

Ironically, GENIUS may initially deepen dollar usage. Digital dollars are likely to circulate widely. Financial platforms will offer yield-enhanced products backed by Treasuries. Emerging markets may be tempted to adopt stablecoins for remittances, trade settlement and savings.

But the medium- and long-term consequences point in the opposite direction. As the risks and asymmetries become apparent, the incentives to reduce reliance on the dollar – and on US financial infrastructure – will further intensify.

Under the GENIUS stablecoins regime, foreign actors have no governance rights in these systems, and US regulators and courts retain ultimate control, even over assets held abroad. Because dollar liquidity can now be weaponized more quickly, more precisely and more arbitrarily than ever before, there's even more risk for dollar users.

The privatization of gains and the socialization of crises

The structure of profit and loss under GENIUS enables private issuers to capture rents from seigniorage, interest spreads and transaction fees. Financial institutions will be able to build new derivatives and lending platforms on top of stablecoin liquidity. Yet when things go wrong – like peg breaks, cyber attacks and redemption runs – the burden will fall on public institutions.

In these circumstances, the US Federal Reserve may ironically be forced to intervene in bond markets having been sidelined by the expansion of privately issued stablecoins. The US Treasury may have to guarantee collateral. The contagion could force central banks in emerging markets to defend their currencies, drain reserves or cut rates to stabilize capital flows. All of these are real risks resulting from exposure to or embeddedness in a system created to privatize financialized gains and socialize risks and losses. System volatility is exported and contagion risks are higher than ever.

This is rentier capitalism on a planetary scale.

What should the Global South do?

For developing economies, particularly those in Asia, Africa and Latin America, GENIUS should catalyze a coordinated strategic response. Such a response would involve accelerated monetary diversification. The imperative of parallel payment systems rises. Whatever the debates are within BRICS about the specifics of BRICS Clear, there's now further reason to move post-haste to a resolution.

Meanwhile, bilateral cross border settlements in national currency need to expand; and they are expanding. Enhanced financial firewalls may also be needed. Reserves and capital accounts need to be stress tested against potential US Treasury market disruptions.

Countries may be wise to consider strengthening capital controls on cross-border flows tied to digital dollar platforms. And, there's a need for regional peers to establish contingent liquidity pools insulated from US-centric crises. Again, the BRICS Contingent Reserve Arrangement and enhanced role of the New Development Bank become more important than ever.

The GENIUS Act is not merely a domestic fintech initiative. It is a structural transformation of the global dollar system, which quietly seeks to extend US control over global liquidity while amplifying risk for everyone else. For the Global South and any nation with exposure to US bonds or dollar-clearing infrastructure, these developments bring home a clear message: dedollarization isn't a luxury, it's essential.

There is no upside in being drawn deeper into a monetary ecosystem you cannot govern and will be forced to bail out when it fails.

There is no greater reason to build a financial architecture that reflects a multipolar world than the systemic risks posed by the US moves on stablecoins. Such a system is one where monetary power is not concentrated, surveillance is not weaponized and systemic stability is not sacrificed for private profit.

GENIUS, in the end, is not a financial breakthrough in the public interest. It is a reflection of the growing financialization psychosis and expanded reach of fictitious capital detached from the value of the real economy. If you thought the US initiated financial crisis of 2008 was bad, the emerging institutional and technological ecosystem amplifies the risks. The passage of the GENIUS Act is a warning shot to the world. The smartest response is to prepare a graceful exit.