Banks create money every time they make a loan or buy an asset. Stablecoin issuers are not supposed to work the same way. They are far more demand driven. Yet there is an aspect of the GENIUS Act that may allow them far greater balance sheet flexibility, and to do so at scale. The issue has not been raised in the OCC’s current rulemaking on stablecoins. The banking associations did not flag it in their comment letters. Neither did one of the largest stablecoin issuers.
To understand why, it helps to revisit a counterintuitive finding from the White House stablecoin paper published in April. Stablecoins, the Council of Economic Advisers argued, do not displace bank deposits. When a consumer converts dollars into stablecoins, the deposits do not disappear. They move. If the stablecoin issuer buys Treasury bills with the proceeds, the cash ends up in the bank account of the dealer who sold them. If the issuer holds cash, the deposits sit at the issuer’s bank. Either way, aggregate deposits are effectively unchanged. At least in the first instance.
The corollary is significant. If bank deposits remain unchanged and there are now also stablecoins in circulation, stablecoin issuance amounts to money creation. That effect is passive and reasonably well understood. The gap in the GENIUS Act points to something more active.
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