‘CLARITY Act promotes safety’ – Why Coinbase dismisses stablecoin risk concerns
The White House may need more than stablecoins to extend the U.S. dollar's global dominance.
Coinbase is pushing back against claims that stablecoins pose a risk to the economy because they are ‘private’ money.
For Paul Grewal, Coinbase’s legal chief, regulations can address these concerns. He noted,
Money that’s ‘private’ isn’t any more inherently risky than healthcare or security or transportation that’s private. It’s how you manage that risk, as well as access and oversight, that matters. CLARITY promotes all this.
Grewal was responding to a Wall Street Journal report that framed stablecoins as risky bets that could destabilize traditional financial systems. Well, even Federal Reserve Governor Michael Barr had similar concerns in the past.
So far, the most raised issue has been financial stability in case of bank-run-style events on major stablecoins like USDC, as many users opt for redemptions at the same time.
Since they’re backed by short-term U.S. Treasury bonds, the instability may spill to the linked traditional institutions. However, the GENIUS Act, the stablecoin law, aims to address these issues by tight supervision of capital requirements, reserve assets, and liquidity buffers.
Another risk has been the potential bank deposit flight that could undermine community banks’ capacity to lend to small and medium businesses. Again, this problem has been partly addressed by the stablecoin yield deal on the broader crypto market structure bill, the CLARITY Act.
Still, White House support for stablecoins may not achieve its ultimate goal of U.S. dollar hegemony.
Stablecoin isn’t enough for the U.S. dollar’s global dominance
Notably, the White House is actively promoting stablecoins, highlighting their potential to reduce national debt by creating new demand for Treasury bonds.
Stablecoin issuers currently hold nearly $200 billion worth of Treasury bonds, with Tether leading the pack. Still, this is less than 1% of the total treasury market. A recent Bloomberg report noted that stablecoins may not be enough to assure U.S. dollar dominance as a global reserve currency.
Josh Lipsky, chair of international economics at the Atlantic Council, told Bloomberg that,
There’s nothing that stablecoins can do that gets to the foundations of the dollar, which are trust, fiscal processes, rule of law, and the independence of monetary authorities.
Furthermore, President Donald Trump’s attempts to influence the Fed have hit headlines since last year. This has dragged the value of the U.S. dollar, measured by the U.S. Dollar Index, to a five-year low.
Final Summary
- Coinbase’s Paul Grewal dismissed claims that stablecoins could threaten the stability of traditional financial markets.
- Still, the dollar could lose its global reserve currency status due to the lack of trust and political interference of its institutions, like the Fed.
