The Genius Act is Truly Genius

The Real Estate Espresso Podcast

The Genius Act is Truly Genius

Spotify Google Podcast Apple Podcast Subscribe via RSS Leave a Review

The Genius Act is Truly Genius

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show, we’re looking at some of the changes happening to the global monetary system that I believe are being largely misunderstood. The Genius Act, passed earlier this year, is going to enable the U.S. to extend its reach internationally, which could have the effect of strengthening the U.S. position as the world reserve currency.

Think about the demand for dollars, or any stable currency, if you live in a country that has high inflation. The people in Turkey, or Argentina, or Venezuela, along with numerous other countries, are experiencing high inflation. Inflation in Turkey is close to 50 percent a year. Argentina, 98 percent a year. Venezuela is a whopping 400 percent, year over year.

The average person on the street aims to spend their paycheck in full because they know whatever they’re going to buy next week is going to be more expensive. If they can’t realistically spend all their cash, they’ll find a way to exchange for dollars or euros, still mostly U.S. dollars.

The problem is that folks can’t necessarily open a U.S. dollar-denominated bank account and exchange into U.S. dollars at the bank. They end up going to expensive currency exchange businesses and pay a sizable premium to convert their Turkish lira into U.S. dollars. If you walk on the streets of ~~Vistanbul~~📝Istanbul, these currency exchange businesses are virtually on every street corner.

This year, the U.S. Genius Act passed into law. Most people don’t know what the Genius Act is. Some people know it has something to do with crypto, but if they’re not out there buying groceries with Bitcoin or Ethereum, who cares? What does all this have to do with me?

For the past few years, there’s been a lot of chatter about a central bank digital currency. The U.S. Federal Reserve Act prevents a direct relationship between the Federal Reserve and ordinary citizens. If currencies that are not within government control become entrenched in a significant way, then governments could lose control over the economy, taxes, and no government would allow that to happen.

It looks like the U.S. government is setting up to have the U.S. dollar become the dominant currency, backing stablecoins. A stablecoin, unlike Bitcoin, is pegged to a fixed asset. Technically, you could have a gold-backed stablecoin or a stablecoin backed by… who knows… a barrel of oil, or the U.S. dollar, or the euro, or ~~russian~~📝Russian rubles, doesn’t matter.

Under the Genius Act, the stablecoin must be backed one-for-one with either U.S. Treasuries or U.S. dollars. That will increase the demand for the U.S. Treasuries, but who knows by how much. Those who issue stablecoins have restrictions on how they can earn income. If they’re holding Treasuries, for example, they’ll earn interest on those bonds. They’re prohibited in engaging in any kind of lending.

We have to remember that stablecoins are programmable tokens. These tokens can maintain a full paper trail on the transactions associated with them. Maybe at some point, international finance will be conducted using stablecoins instead of wired transfers over the SWIFT network. Transactions will be faster, they’ll be lower cost.

Issuers may charge small fees for issuing or redeeming stablecoins or facilitating transactions, provided those fees are disclosed and they’re in compliance with the regulations. One feature of stablecoins is that they allow people to transact in U.S. dollars outside of the banking system in foreign countries. ~~that~~📝That means the regulatory reach for the U.S. technically would extend into financial matters in foreign countries.

Today, the euro-dollar system ~~, will in effect exists within the US, when US dollars are expressed as a reserve currency~~📝in effect exists outside the U.S., when U.S. dollars are expressed as a reserve currency. There’s more U.S. dollar-denominated transactions outside of the U.S. than inside the U.S., at least on a global basis.

We tend to think of the U.S. as wanting to maintain ~~maintain~~📝global financial oversight of the SWIFT network. ~~was~~📝SWIFT is actually based in Belgium, and it’s a European construct. I’ve personally visited SWIFT headquarters when I was at Nortel. We supplied the network infrastructure for the SWIFT network.

The thing to remember is that stablecoins are programmable. This means there’s a history of all the transactions in the blockchain, and the U.S. government can maintain both oversight and control over the transactions. Today, the vast majority of stablecoins are denominated in U.S. dollars. And that means the adoption of stablecoins for commerce outside of the U.S. will extend the reach and entrenchment of the U.S. dollar as the world’s reserve currency.

The fact that these coins are not issued by the U.S. government will create the perception that those coins have the best of both worlds. They’re U.S. dollar-denominated and they’re backed either by U.S. dollars or Treasuries, but they’re not a central bank digital currency.

How these will be rolled out is not 100% clear. The rules, as currently written, restrict companies larger than $25 billion in revenue from participating. That’s designed to keep the dominant players like Google, Apple, and Meta from playing in the space.

Banks can own stablecoins, but they have to be separate business units with no commingling of other banking activities. The idea is that these coins are all about extending the reach of the U.S. dollar.

There’s currently 180 fiat currencies in the world, and there’s no market for exchanging ~~guarini~~📝guaraní from ~~paraguay~~📝Paraguay into ~~japanese~~📝Japanese yen. All of that happens today through the U.S. dollar. And stablecoins denominated in U.S. dollars are the key to further entrenching the dollar as the world’s reserve currency.

I think they also see a higher international adoption than coins that might be under the direct control of the Chinese Communist Party.

At some point, we may also see these coins make their way into the real estate world, but I expect stablecoins will be first used in collecting rent on vacation rentals before we see widespread adoption in other areas of real estate.

As you think about that, have an awesome rest of your day, go make some great things happen, and I’ll talk to you again tomorrow.

Stay connected and discover more about my work in real estate and by visiting and following me on various platforms: