New York Times: Crypto is staging a financial 'coup'

 

Written ：Dan Davies、Henry J. Farrell

Translated：BitpushNews Yanan

It has been a fruitful week for US crypto interests. The Genius Act passed the Senate, officially legalizing cryptocurrencies such as stablecoins. More strikingly, President Trump hosted a private dinner Thursday for the top 220 investors who hold the "Trump" memecoin ($Trump memecoin). For the United States as a whole, however, this has not been a week to celebrate.

A stablecoin is a crypto asset backed by traditional assets such as the US dollar. The USD1 stablecoin, issued by the Trump family through its cryptocurrency company, World Liberty Financial, is a prime example. If such digital currencies are used for the transmission of political benefits, the harm cannot be underestimated. But what is even more alarming is the deep impact they could have on the mainstream US financial system – a risk that is more subtle and devastating.

Proponents of stablecoins claim that such currencies will cement US financial hegemony – and Trump has even said that stablecoins will "further extend the global dominance of the US dollar".

However, the reality may be quite the opposite. Such digital currencies may not only weaken the international standing of the US dollar, but also contribute to financial fraud, sanctions evasion, and even systemic risk. More alarmingly, they may open the door for another currency to replace the dollar as a tool for global trade settlements.

World Liberty Financial said its stablecoin will be backed by short-term U.S. Treasuries, U.S. dollar deposits and other cash equivalents. Similar to the role of the U.S. dollar as a cornerstone of the global financial system, stablecoins attempt to provide a value anchor for the cryptocurrency market – avoiding the cost of exchanging real dollars in regulated bank accounts while bypassing many of the constraints of the traditional financial system.

Cryptocurrency interest groups are trying to break down the boundaries between the crypto market and traditional finance by integrating stablecoins into the mainstream U.S. financial system. This strategy allows them to switch between two distinct worlds: highly volatile crypto casinos on the one hand, where people can speculate on all sorts of online memes, and traditional financial markets that are heavily regulated (assets and bank accounts are protected by the SEC and the Federal Deposit Insurance Corporation) on the other.

With Trump's return to the White House, the crypto industry has ushered in a new opportunity for growth – but not alone. Crypto has been able to gain bipartisan support both thanks to the huge financial investment of political action committees (PACs) and to the successive failures of crypto-skeptical politicians. (In 2024, the crypto industry threw $40 million to thwart the re-election bid of Ohio Senator Sherrod Brown, a well-known crypto critic.) ）

Proponents of stablecoins believe that the cryptocurrency boom will strengthen the dollar's international position. Senator Kirsten Gillibrand, Democrat of New York, one of the co-sponsors of the Genius Act, warned that the U.S. was at risk of "falling behind in the digital currency race." In particular, she noted, "We are watching Europe and China make a big splash in the digital currency space, and the Trump administration is blocking the Fed's plans to launch a digital dollar, which will undoubtedly leave us further behind."

Gillibrand argues that since most stablecoins are pegged to the U.S. dollar, the global dominance of the U.S. dollar can be strengthened by strengthening regulation and promoting such digital currencies. This argument is not entirely unreasonable – the dollar's global dominance is due to the economic and political stability of the United States and the international payment network it has built. This position of superiority has allowed the United States to turn the core position of the global financial system into a strategic weapon: through economic sanctions, the United States has been able to force international financial institutions to choose between "serving customers who are not popular with the United States" and "entering the global financial system dominated by the dollar."

The crypto industry strongly believes that the legalization of stablecoins will formally integrate the current mixed crypto ecosystem — which, notably, many crypto projects and exchanges, which were created to circumvent or even replace the hegemony of the U.S. dollar and government fiat currencies — into the mainstream financial system.

All of this is undoubtedly a major positive for the cryptocurrency industry, but it also poses a huge hidden danger to global financial stability. One need only look at the rhetoric of crypto enthusiasts: Trump's appointee "AI and crypto czar", David Sacks, openly expects cryptocurrencies such as Bitcoin to become the "new world currency" and allow the United States' financial hegemony to be replaced by disorderly competition in the private sector.

If cryptocurrencies become mainstream financial instruments, the chaos that could arise is worrying. Democratic aides on the Senate Banking Committee noted that the Genius Act would allow U.S. exchanges to list stablecoins issued by offshore companies that are not subject to domestic regulation. Critics specifically mention that Tether, the main stablecoin currently in circulation, which operates outside of U.S. jurisdiction, has proven to be a conduit for criminals and sanctions evaders. Even more alarming, certain "coin mixer services" with transaction anonymity have been accused of helping North Korean hackers launder hundreds of millions of dollars.

Even if a well-established regulatory framework exists, enforcement is key. The U.S. Department of Justice has recently introduced a puzzling policy of acknowledging that terrorist groups such as Hamas and ISIS use cryptocurrency platforms to conceal money flows and evade investigation, while declaring immunity from prosecution for some platforms. And the infamous meme coin scam (in which the issuer collects public money and then runs away) is even less likely to be held legally accountable when the incumbent president sees it as a tool for personal profit.

Perhaps the most fundamental concern about stablecoins lies in the systemic financial risks they may cause. This peculiar existence on the fringes of the traditional financial system has brought unprecedented regulatory challenges. While the authors of the Genius Act proposed to periodically assess the impact of stablecoins on financial stability, they deliberately avoided a central question: Will the U.S. government provide credit endorsements for dollar stablecoins?

The crux of the matter is: should the government come to the rescue when a stablecoin is facing a crash or is proven to be fraudulent? If a bailout is chosen, it could leave taxpayers with heavy debt – the fundamental reason why traditional "too big to fail" traditional financial institutions need to be subject to strict regulation.

However, if the bailout is refused, it will bring new systemic risks to the international dollar system. When the market is unable to predict which institutions will collapse due to the ripple effect and how much risk exposure will be, a bank run crisis can erupt, eventually leading to a liquidity drying up of the entire financial system. This is the fundamental reason why regulators require a high degree of transparency from major players in the global dollar market.

In the case of Tether, the CEO of Tether has bluntly revealed a cautionary tale scenario: European stablecoin issuers have had to keep their funds in small and medium-sized banks due to the refusal of large banks to cooperate. However, if the market loses confidence in the stablecoins managed by these banks, and 20% of their holdings are redeemed in a concentrated manner, these small and medium-sized banks will immediately face a crisis similar to a run on traditional banks.

Who will be able to stop this panic from spreading throughout the banking system? This role must be taken up by institutions with sufficient bailout capacity – and in real dollars, not specious cryptocurrencies.

This explains why the question of "should the U.S. support a dollar stablecoin" be so difficult to answer. It's no wonder that reports suggest that many countries are trying to reduce their banks' reliance on dollar financing.

The international community sees the U.S. move to legalize stablecoins as a potential threat. Once stablecoins become a new type of financial instrument controlled by the United States, Washington could use it to further infiltrate other countries' financial systems. More worryingly, the new bond between the US dollar and cryptocurrencies could lead to illicit financial flows on an unprecedented scale.

ECB Chief Economist Philip Lane has warned that reliance on stablecoins will lead to a shift in financial activity from the euro system to dollar-backed private cryptocurrencies, which will make Europe more vulnerable to pressure from the US economy.

As part of the EU's "strategic autonomy" plan, which aims to reduce dependence on the United States, the European Central Bank is accelerating the construction of a digital euro. This public-sector-led digital currency will not only provide a complete alternative payment network, but will also have built-in privacy protections and security mechanisms – in contrast to private stablecoins.

The current situation shows that instead of consolidating the hegemony of the dollar by "helping the United States catch up" as expected, stablecoins are accelerating the liberation of countries from the shackles of the dollar system. Europe is not only building its own financial net, but also building a new global alternative – a system that is increasingly losing trust and facing unprecedented challenges.

The head of the ECB's Digital Euro project has begun to discuss its "prospects for international application", aiming to create a new payment system that "respects the sovereignty of countries, reduces systemic risks, and creates new development opportunities".

Ironically, stablecoins, which were originally expected to use the credit of the US dollar to regulate the chaotic crypto market, may in turn transmit the crypto chaos – coupled with the Trump administration's special policy direction – to the traditional dollar-dominated financial system. This reverse osmosis is raising deeper systemic risks.

This article is sourced from Foresight News:

https://foresightnews.pro/article/detail/84685

Respectfully submitted by the AIC Team

June2, 2025