{"id":300397,"date":"2025-08-04T12:00:26","date_gmt":"2025-08-04T11:00:26","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=300397"},"modified":"2025-08-02T11:12:11","modified_gmt":"2025-08-02T10:12:11","slug":"the-genius-act-and-the-national-bank-acts-of-1863-64-taking-a-cue-from-lincoln","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2025\/08\/the-genius-act-and-the-national-bank-acts-of-1863-64-taking-a-cue-from-lincoln\/","title":{"rendered":"The GENIUS Act and the National Bank Acts of 1863-64: Taking a Cue from Lincoln"},"content":{"rendered":"

1 Aug 2025\u00a0<\/em>–\u00a0This month Congress passed the\u00a0GENIUS Act<\/a>, an acronym for the \u201cGuiding and Establishing National Innovation for U.S. Stablecoins of 2025.\u201d Designed to regulate stablecoins, a category of cryptocurrency designed to maintain a stable value, the Act is highly controversial.<\/p>\n

Critics variously argue that it anoints stablecoins as the equivalent of \u201cprogrammable\u201d central bank digital currencies (CBDCs), that it lacks strong consumer protections, and that government centralization destroys the independence of the cryptocurrency market. Proponents say the rapidly expanding stablecoin market not only provides a faster and cheaper payments system but can serve as a major funding source to help alleviate the federal debt crisis, which is poised to destroy the economy if not checked, and that the stablecoin market has gotten so large that without regulation, we may have to bail it out when it becomes a multitrillion dollar industry that is \u201ctoo big to fail.\u201d<\/p>\n

For most people, however, the whole subject of stablecoins is a mystery, so this article will attempt to throw some light on it. It will also explore some historical use cases demonstrating how the government might incorporate stablecoins into a broader program for escaping the debt crisis altogether.<\/p>\n

Stablecoin Mania<\/strong><\/h3>\n

The cryptocurrency craze began with Bitcoin in 2008.\u00a0Conceived as a decentralized alternative<\/a>\u00a0to government-issued currency, Bitcoin uses blockchain technology \u2014 a transparent, tamper-resistant ledger that all users can view and verify \u2014 to facilitate peer-to-peer transactions without relying on banks or payment intermediaries.\u00a0But to be widely accepted, a currency must have a stable value, and Bitcoin\u2019s value has vacillated wildly. Stablecoins were devised to solve that problem. They are cryptocurrencies that are backed by safe assets (e.g., short-term U.S. Treasuries). Supposedly, holders of stablecoins can redeem the coins at par and at will for cash, just like demand deposits and money market funds.<\/p>\n

Stablecoin use has\u00a0exploded in recent years<\/a>. As of March 2025, their total market capitalization reached $232 billion, a 45-fold increase since December 2019. Projections suggest this figure could hit $400 billion by year-end and as much as $2.8 trillion by 2028. Stablecoins Tether (USDT) and USD Coin (USDC) dominate the market, holding 86% of it. In 2024, stablecoins processed $27.6 trillion in transfer volume (the total value of stablecoin transactions recorded on blockchains),\u00a0surpassing the combined volume<\/a>\u00a0of Visa and Mastercard.\u00a0Daily<\/em>\u00a0volumes could hit $300 billion in 2025.<\/p>\n

Stablecoins are said to be\u00a0transforming cross-border payments<\/a>, remittances and DeFi (decentralized finance). They offer faster, cheaper transactions and are used in 71% of cross-border payments in Latin America. In crypto markets, stablecoins account for 60\u201380% of trading volume on major exchanges.\u00a0Latin America and Sub-Saharan Africa lead<\/a>\u00a0retail and professional-sized stablecoin transfers, with over 40% year-over-year growth.\u00a0Major banks and fintechs<\/a>\u00a0are also integrating stablecoins or have started stablecoin initiatives, including Bank of America, Wells Fargo, Stripe, JPMorgan, PayPal and Soci\u00e9t\u00e9 G\u00e9n\u00e9rale.<\/p>\n

Despite their name, however,\u00a0stablecoins are not entirely stable<\/a>. They have faced liquidity crises and transparency issues and are vulnerable to runs. Hence the need for regulation. The GENIUS Act of 2025, signed July 18, 2025, requires stablecoin issuers to be banks or approved nonbanks, to maintain 1:1 reserves in safe assets (e.g., U.S. Treasuries, cash) that are audited monthly, and to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) rules.<\/p>\n

The \u201cBackdoor CBDC\u201d Issue<\/strong><\/h3>\n

Was the intent of the Act to create a \u201cbackdoor CBDC\u201d? The concern of critical commentators is with privacy and \u201cprogrammability\u201d \u2014 the ability of the issuer to program a digital currency in order to control or block its use.<\/p>\n

Skeptics of the backdoor CBDCs theory note that President Trump signed an\u00a0executive order banning CBDCs<\/a>\u00a0in January, citing privacy and economic stability concerns, and that stablecoins are not centrally issued but have many private issuers globally. Any digital currency is \u201cprogrammable\u201d unless specifically protected against it, and most of our currency is already digital, created on the ledgers of banks when they make loans.<\/p>\n

It has been argued that programming the use of deposits could actually be done more easily with our existing network of banks than with globally scattered stablecoin issuers, just by sending the banks orders in automated messages by API. (An API, or \u201capplication programming interface,\u201d\u00a0is \u201ca set of rules<\/a>\u00a0or protocols that enables software applications to communicate with each other to exchange data, features and functionality.\u201d)\u00a0In a July 22 Substack post titled \u201cHas Brazil Invented the Future of Money<\/a>?\u201d, former New York Times columnist Paul Krugman writes:<\/p>\n

\n

[T]he government can access private bank records under certain circumstances and certainly has the technological ability to watch every financial move you make. The only thing that keeps it from doing so is the law, specifically the Right to Financial Privacy Act. If we ever do create a CBDC, it will surely involve comparable privacy protection.<\/p><\/blockquote>\n<\/blockquote>\n

Krugman suggests that it is really the banks that are afraid of CBDCs, because people will withdraw their funds from their private bank accounts in favor of their central bank accounts, cutting out the banker middlemen and their much higher fees. He points to Brazil, which has a CBDC-like system called Pix \u2013 a sort of publicly-run Zelle in which transactions settle in three seconds on average, versus two days for debit cards and 28 days for credit cards; and the Brazilian authorities have set a requirement that Pix be free for individuals. It is used by 93% of Brazilian adults, compared to a mere 2% of Americans using cryptocurrencies for trade.<\/p>\n

Financial commentator\u00a0Mark Goodwin contended in a recent interview<\/a>\u00a0on the Corbett Report that a programmable currency issued by a private stablecoin company could actually be\u00a0more\u00a0<\/em>dangerous than a CBDC.\u00a0<\/em>Some of these companies aren\u2019t even domiciled in the United States, and they are not subject to Federal Reserve control. In a July 26th podcast, macroeconomic historian\u00a0Miles Harris explained<\/a>\u00a0that risk like this:<\/p>\n

\n

In the GENIUS era, private stablecoin issuers function as offshore central banks. Liquidity creation occurs outside the Fed\u2019s control, but the underlying collateral\u2014U.S. debt\u2014remains on public books. This creates a governance gap:\u00a0liquidity is generated by private actors driven by profit, not monetary stability, yet systemic risk returns to the public sector if things unravel<\/em>. During the Bretton Woods era, confidence in the dollar was theoretically anchored to gold. Today, no such backstop exists. The Anti-CBDC Act prohibits the Federal Reserve from issuing a central bank digital currency (CBDC), leaving no public digital dollar to counterbalance private stablecoins.<\/p><\/blockquote>\n<\/blockquote>\n

To explain all that might take another article, but in any case the GENIUS Act has passed and is a done deal. Whether or not we approve, we now need to consider its ramifications. Its main purpose seems to be to salvage the federal bond market, which is in perilous straits.<\/p>\n

Propping Up the Bond Market and the Dollar\u00a0<\/strong><\/h3>\n

The rapidly expanding stablecoin market is projected to be able to fill the void left by disenchanted governments that are dumping Treasuries and \u201cdedollarizing\u201d in response to Western sanctions and U.S. tariffs.\u00a0According to Senator Bill Hagerty<\/a>\u00a0(R-TN), who sponsored the GENIUS Act, it could lead to stablecoin issuers\u00a0becoming\u00a0the \u201cworld\u2019s largest holders of U.S. Treasuries by 2030.\u201d<\/p>\n

Treasury Secretary Scott Bessent says stablecoins are a strategic\u00a0tool to \u201clock in dollar supremacy<\/a>.\u201d As financial commentator\u00a0Lyn Alden observes<\/a>, when residents of countries with unstable currencies (such as Argentina) purchase U.S. stablecoins to protect their savings from runaway inflation, the stablecoin issuer uses the local currency of the purchaser to buy U.S. Treasuries. In effect, the local currency has been converted to U.S. currency. That is also true for other institutional uses of stablecoins.<\/p>\n

The problem with privately-issued money, however, is that untrustworthy issuers are subject to destabilizing bank runs; and that has been true for centuries. Gaining the confidence of users requires regulation to establish the stability and liquidity of the stablecoins, and hence the need for the GENIUS Act.<\/p>\n

How Lincoln Solved His Debt Crisis<\/strong><\/h3>\n

In a 2023 research paper titled \u201cTaming Wildcat Stablecoins<\/a>,\u201d Professors Gary B. Gorton and Jeffery Y. Zhang compared stablecoin issuers to the private \u201cwildcat banks\u201d that issued their own paper currencies as banknotes during the Free Banking Era before the Civil War. Private state-chartered banks issued their own paper banknotes, which were thinly capitalized and of uncertain reliability and exchangeability. Bank runs were common. The problem was solved through the National Bank Acts of 1863 and 1864.<\/p>\n

The Acts sought to stabilize a very chaotic system of private currencies by encouraging banks to acquire national bank charters that would allow them to issue a uniform national bank currency. To ensure its uniformity and stability, the banks were required to back their National Bank Notes 1 to 1 with federal bonds or precious metal coins deposited with the U.S. Treasury. This pool of liquidity \u2014 the forerunner of today\u2019s central bank \u201creserves\u201d \u2014 not only stabilized the currency against runs but helped fund the war effort and created a market for federal debt.<\/p>\n

It helped, but the bonds purchased by the banks were not sufficient to fund the government\u2019s needs. British-backed bankers were\u00a0demanding 24\u201336% interest<\/a>\u00a0on loans \u2014 usurious terms that risked \u201crecolonizing\u201d the U.S. through debt. President Lincoln avoided that crippling debt by reverting to the funding mechanism of the American colonists \u2013 government-issued paper money. Under the Legal Tender Act of 1862, the Treasury issued $450 million in U.S. Notes or Greenbacks \u2014 fiat currency spent directly into the economy for soldiers, supplies and contracts.<\/p>\n

These innovations allowed Lincoln\u2019s government to bypass foreign lenders, fund the Civil War, and preserve the country from colonization by debt. A similar approach could arguably solve the government\u2019s debt crisis today.<\/p>\n

Fast Forward to 2025<\/strong><\/h3>\n

The United States now grapples with a\u00a0$36.72 trillion federal debt<\/a>\u00a0and an interest burden projected to be\u00a0$952 billion for 2025<\/a>, consuming 18.4% of federal revenues. The\u00a0debt to GDP ratio is<\/a>\u00a0an unsustainable 124%. Neither raising taxes nor slashing the federal budget will solve what is essentially a math problem: the debt-at-interest is growing faster than the economy itself.<\/p>\n

The GENIUS Act, requiring stablecoins to be backed by U.S. Treasuries, follows the same funding model as the National Bank Acts, and it has the same limitations as a funding model. Stablecoins can bolster the market for U.S. debt, but they won\u2019t tame the voracious interest monster that is consuming the federal budget. President Lincoln largely met his funding crisis with currency issued directly by the Treasury, and President Trump could do the same.<\/p>\n

This would have to be done, however, through the Treasury, not the Federal Reserve. The Fed can only issue \u201cbank reserves\u201d and is not allowed to fund the federal debt by buying Treasuries directly from the government. It\u00a0must buy them on the open market<\/a>, with reserves injected into the reserve accounts of the banks of the sellers. The banks then credit the sellers\u2019 deposit accounts with dollars, but the dollars go to the sellers, not to the Treasury; and the interest on the bonds goes to the banks, due to the Fed\u2019s controversial policy of paying interest on the banks\u2019 reserves.<\/p>\n

Today, this interest paid to the banks is actually greater than the interest the Fed earns on the bonds it buys from them, resulting in a negative balance in its portfolio. In a recent interview on Fox News Business, Treasury Secretary\u00a0Bessent said<\/a>\u00a0the Fed was \u201closing $1 billion a year because of a mismatch in the bond portfolio from the short-term rates.\u201d In 2023, this loss\u00a0amounted to $114 billion<\/a>; and it actually accrues to the Treasury, since the Fed is required to rebate its profits to the Treasury after deducting its costs. The Fed has now amassed a negative balance that will take years to pay off.<\/p>\n

Thus Federal Reserve purchases of federal securities through \u201cquantitative easing\u201d won\u2019t solve the debt problem. Treasury-issued currency, on the other hand, is legal and constitutional, as established by Lincoln\u2019s Greenbacks and the subsequent\u00a0legal tender cases<\/a>\u00a0of the Supreme Court; and it\u00a0could<\/em>\u00a0actually solve the debt crisis.<\/p>\n

Dealing with the Inflation Question<\/strong><\/h3>\n

Printing the whole $37 trillion needed to pay off the federal debt would no doubt be inflationary, and Congress would consider it a bridge too far in any case. But the Treasury could print enough to cover the interest on the debt, or to buy the debt as it comes due, or to cover the budget deficit.<\/p>\n

The risk, of course, is that an out-of-control Congress will run the presses as a \u201cmagic money tree\u201d to fund all of its pet projects; but limits could be put on these expenditures. They could be required to be \u201cproductive,\u201d adding to GDP, lowering the debt to GDP ratio to manageable levels. The German government did this in the 1930s with Mefo bills, avoiding speculative exploitation of the funds by issuing them\u00a0as payment for specific industrial output<\/a>.<\/p>\n

The People\u2019s Bank of China has hugely increased the money supply of that country without creating price inflation. Prices have been kept stable by increasing supply (GDP) along with demand (money). (For details, see my earlier article\u00a0here<\/a>.) Increasing the country\u2019s GDP has been facilitated by China Development Bank, the world\u2019s largest development bank, which has funded massive infrastructure and development across the country.<\/p>\n

HR 4052,\u00a0The National Infrastructure Bank Act of 2023<\/a>, is currently before Congress and has 48 co-sponsors. Like the Reconstruction Finance Corporation that pulled the U.S. economy out of the Great Depression, the bank is designed to be a source of off-budget financing, without adding new costs to the federal budget. It follows the model of the First U.S. Bank established by Alexander Hamilton. Capitalization is to be with debt-for-equity swaps: Treasuries held by the public will be traded for shares in the bank, paying 2% over the interest earned on the Treasuries. For more information, see the\u00a0Coalition for a National Infrastructure Bank\u2019s website<\/a>.<\/p>\n

At the local level, state-owned banks could do something similar. Currently our only state-owned bank is the Bank of North Dakota, but it is a very successful model that not only funds state infrastructure and development but generates income for the state and acts as a \u201cmini-Fed\u201d for local banks. For more information, see\u00a0the Public Banking Institute website.<\/a><\/p>\n

The GENIUS Act can stabilize the bond market, but it is only a stopgap measure, buying time in the battle against an ever-growing debt. To escape altogether, as Lincoln\u2019s government did, Congress needs to issue some of its own \u201csovereign\u201d money. If issued for productive purposes in a sustainable way, this money could arguably fuel the economy without reliance on federal debt markets at all.<\/p>\n

________________________________________<\/em><\/p>\n

\"\"<\/a> Ellen Brown is a member of the <\/em>TRANSCEND Network for Peace Development Environment<\/a>, an attorney, founder\/chairperson of the\u00a0<\/em>Public Banking Institute<\/a>, and author of thirteen books including\u00a0<\/em>Web of Debt<\/a>,\u00a0The Public Bank Solution<\/a>, and\u00a0<\/em>Banking on the People: Democratizing Money in the Digital Age<\/a>.\u00a0Her articles are at\u00a0<\/em>ellenbrown.com<\/em><\/a><\/p>\n

 <\/p>\n

Go to Original \u2013 ellenbrown.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

1 Aug 2025 – Congress passed the GENIUS Act. Critics variously argue that it anoints stablecoins as \u201cprogrammable\u201d central bank digital currencies, that it lacks consumer protections, and that government centralization destroys the independence of the cryptocurrency market.<\/p>\n","protected":false},"author":4,"featured_media":118593,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40],"tags":[1246,354,562,176,70],"class_list":["post-300397","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-transcend-members","tag-cryptocurrency","tag-economics","tag-finance","tag-money","tag-usa"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/300397","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=300397"}],"version-history":[{"count":1,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/300397\/revisions"}],"predecessor-version":[{"id":300398,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/300397\/revisions\/300398"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/118593"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=300397"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=300397"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=300397"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}