Amundi warns US stablecoin policy could destabilise global payments system

Europe's largest asset manager, Amundi, along with other global financial authorities like the BIS and Italy's finance minister, are expressing significant concerns over the U.S. GENIUS Act's potential impact on dollar-backed stablecoins. While the act is expected to drive demand for U.S. Treasuries, the anticipated growth of stablecoins to potentially $2 trillion raises fears of global 'dollarization,' undermining national monetary sovereignty, facilitating capital flight from emerging economies, and destabilizing the global payment system, especially given that most stablecoin transactions occur outside the U.S.

Analysis

The impending U.S. GENIUS Act, designed to regulate dollar-backed stablecoins, is triggering significant alarm among major European financial entities over its potential to destabilize global financial systems. Amundi Asset Management, the Bank for International Settlements, and Italy's finance minister have all voiced concerns that a surge in stablecoin issuance—projected by JPMorgan to reach at least $500 billion and potentially as high as $2 trillion—could induce widespread 'dollarization' in foreign economies. This trend threatens to erode the monetary sovereignty of other nations, particularly as over 80% of stablecoin transactions already occur outside the United States. While the act's requirement for stablecoins to be backed by U.S. Treasuries creates a new demand source to help finance the U.S. budget deficit, it also presents systemic risks. These include the rise of unregulated 'quasi-banks,' the potential for accelerated capital flight from emerging markets, and what Amundi's CIO terms a paradoxical weakening of the U.S. dollar by promoting a widely available alternative.

Key Decisions for Investors

• Investors with significant currency exposure should closely monitor the progress of the GENIUS Act and stablecoin adoption rates, as the conflicting pressures on the U.S. dollar could introduce significant FX volatility.
• Fixed income investors should consider the potential for a structural increase in demand for U.S. Treasuries, which could impact long-term yield forecasts.
• Monitor the regulatory responses from Europe and other jurisdictions, as a fragmented or protectionist global reaction could create headwinds for the banking sector and specific risks or opportunities in the fintech and digital asset space.
• Heightened caution is warranted for emerging market allocations, given the explicitly cited risk of accelerated capital flight facilitated by the ease of access to dollar-pegged digital assets.