Stablecoins vs CBDC — US and EU Are on Different Paths to the Same Destination: Programmable Money

While the programmability features of CBDCs have generated considerable alarm, it’s a very different story for the stablecoins that the US government seeks to regulate with its “GENIUS” act.

The Guiding and Establishing National Innovation for U.S. Stablecoins act, aka the “GENIUS” Act, introduced by Republican Tennessee Senator Bill Hagerty on February 4, was under debate this week as the Senate Banking Committee prepared to vote on its proposed measures. The bill aims to regulate stablecoins like Tether’s USDT, Paypal and Circle’s USDC, cryptocurrency tokens that are pegged to a fiat currency value (in this case, the dollar), exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency.

The Trump Administration sees the regulation and promotion of stablecoins as a roundabout means of maintaining the dollar’s supremacy in global payments. Centralized stablecoin issuers back their digital tokens using US bank deposits and short-term cash instruments like Treasury bills, which helps support the demand for the US dollar and US debt. Stablecoin issuers are today the 18th-largest buyer of US government debt, holding over $120 billion in Treasury bonds. That amount will presumably increase if stablecoins are given full regulatory approval.

Despite its name, concerns have been raised about the GENIUS act’s potential ramifications. During a House Financial Services Committee hearing on Tuesday, Rep. Stephen Lynch (D-MA) spoke about the supposed stability of “stablecoins”, noting that they keep “blowing up” while also being susceptible to extreme concentration. He also asked a banking expert if, given that stablecoins operate a lot like deposits, they might risk breaking down the separation between banking and commerce, to which the expert responded:

Yes, absolutely, that’s also a major risk, if you don’t have the sort of protections that exist in the banking system.

This exchange echoes concerns raised by Adam Levitin, a professor of law at Georgetown University, in an article we cross-posted last week, which I strongly recommend readers who haven’t done so to read in full. Levitin concludes that by creating a regulatory regime for stablecoins, “the federal government will ‘own’ any problem that arises in the market. In other words, the Trump administration is setting the stage for publicly funded bailouts of stablecoin issuers:

[H]ere’s the pernicious operation of its ineffective insolvency provisions:  they promise to have created safety for stablecoin investors at no cost, but because it cannot deliver on that promise, it sets up a situation where the government has to deliver safety otherwise, on its own dime. In other words, it sets up a bailout. When there is another crypto crash and stablecoin owners realize that they’re going to incur major losses, they will come crying for a bailout, noting how critical stablecoins are for the whole DeFi world and how they thought their investments were safe because of the GENIUS Act.

What do you think will happen then? After Silicon Valley Bank can one really have confidence that they won’t get a bailout? Will banks be allowed to support their insolvent stablecoin issuer subsidiaries? Will the US Strategic Cryptocurrency Reserve (if created) be used to bail them out by buying their stablecoins at 100¢ on the dollar?

The GENIUS Act creates an implicit government guaranty of stablecoins. That means that taxpayers will be implicitly subsidizing the DeFi transactions that rely on stablecoins and that generally sit outside of the reach of anti-money laundering enforcement: taxpayers are going to be implicitly subsidizing money laundering. Is that really a desirable policy outcome? I fear the consequences of the GENIUS Act haven’t been fully thought through.

Giving Impetus to the Digital Euro

On the opposite side of the North Atlantic, the EU, never one to let any kind of crisis or internal or external threat go to waste, is using the US’ GENIUS act as a pretext to accelerate the roll out of its central bank digital currency (CBDC), the digital euro. On Wednesday, EU finance ministers emerged from a meeting of the Eurogroup parroting the idea that the Trump administration’s stablecoin ambitions underscored the urgent need for a digital euro. Otherwise, the EU’s payments system could fall even more heavily under US control.

Paschal Donohoe, the Irish Finance Minister and President of the Eurogroup, warned that crypto-asset markets are “evolving very fast, both politically and technologically” and “can have important consequences for us here in Europe”.

“The digital euro is critical to staying ahead of the curve in this area. A huge amount of technical work has now been done and there is growing appreciation amongst ministers of the importance of this work.”

Pierre Gramegna, managing director of the European Stability Mechanism, raised the prospect of the GENIUS act legislation encouraging Silicon Valley tech giants to launch their own stablecoins, as Meta once threatened to do with its proposed Libra coin (not to be confused with Javier Milei’s recently rug-pulled meme coin, $LIBRA), which was later renamed Diem:

“What is at stake here is also European Sovereignty. The US administration’s stance on this (crypto) compared to the past has changed. And the US administration is favourable towards cryptocurrency and especially dollar denominated stablecoins, which may raise certain concerns in Europe.”

“It could eventually reignite foreign and US tech giants’ plans to launch mass payment solutions based on dollar denominated stablecoins. If this were to be successful, it could affect the Euro area’s monetary sovereignty and financial stability.”

“Therefore, the ESM supports the European Central Bank’s urgency in making the digital euro a reality to safeguard Europe’s strategic autonomy. The digital euro is today more necessary than ever.”

“We also welcome as ESM and support the initiative of the Commission to relook at the Mica directive which could prove key here to counter the effects we discussed.”

The institution responsible for rolling out the digital euro, the European Central Bank, hopes to finish the preparation phase by October this year, meaning the Euro Area’s CBDC could go live any time thereafter. According to a tender document recently revealed by the German financial journalist Norbert Häring, the ECB expects to be able to introduce the digital euro in 2028 and is pushing ahead with its development despite growing internal EU opposition.

The ECB’s President Christine Lagarde was barely able to hide her excitement at the prospect in a recent press conference, arguing that the task ahead consists primarily of getting all the relevant stakeholders on board. Obviously, they do not include the EU’s 450 million citizens who have been kept in the pitch dark about all of these developments:

“Fabio Panetta on the Board and then Piero Cipollone, who has replaced Fabio, have taken the lead together with a very good team, which is focused on accelerating the pace and hopefully campaigning enough with all the stakeholders – meaning the European Parliament, European Council, European Commission – so that we can eventually, not put to bed, but put to reality this digital euro.”

State of Play Elsewhere

By contrast, many other jurisdictions, including five-eye nations like the US, Canada and Australia, appear to be losing interest in CBDCs, in particular retail CBDCs that are meant for use by the general public and businesses of all shapes and sizes, which is precisely what the EU is aiming for with its digital euro. The Reserve Bank of Australia, conversely, is prioritising the development of a wholesale CBDC, which is intended exclusively for large transactions, particularly cross-border ones, between banks and other financial institutions.

Nearly a third of central banks have delayed plans for a CBDC due to regulatory concerns and changing economic conditions, according to a survey of 34 central banks published in February by the Official Monetary and Financial Institutions Forum (OMFIF). Also, the proportion of central banks that claim to be less inclined to issue than last year has risen to 15% from zero in 2022. As the survey notes, the road to CBDC issuance is “far from smooth” — as evidenced by the lacklustre rollout of CBDCs in jurisdictions like Nigeria, Jamaica and the Bahamas.

As we reported back in October, the prospect of the US, current holder of the world’s reserve currency, permanently pulling out of the global race to develop a CBDC is prompting all manner of teeth gnashing in think tankland. In March, the Brookings Institute warned that while “the US dollar remains king” — for now — “unless US policymakers take decisive steps to adapt to an increasingly digital financial system, the United States risks losing the economic and geopolitical advantages afforded to it by the dollar’s dominance of the global financial system.”

The Atlantic Council put it in even starker terms:

[I]f this bill ever became law, the United States would be the only country in the world to have banned CBDCs. It would be a self-defeating move in the race for the future of money. It would undercut the national security role of the dollar as the decision would only accelerate other countries’ development of alternative payment systems that look to bypass the dollar in cross-border transactions. This would make US sanctions less effective.

Final Destination: Programmable Money 

While the Trump administration has explicitly rejected launching a CBDC, the GENIUS bill could set the US on a roundabout route to more or less the same final destination anyway. And that destination is programmable money.

One of the main differences between the digital money we use today and the digital money envisioned for the near-future by central banks and stablecoin developers is “programmability” — smart contracts that automate and add new features to money. In 2021, a director at the Bank of England said programmable money could bring about “some socially beneficial outcomes,” such as “preventing activity which is seen to be socially harmful in some way.”

For example, governments could directly subtract taxes and fees from any account, in real time, with every transaction or paycheck, if it so wished. As the Washington DC-based blogger and political consultant NS Lyons noted in his 2022 post, Just Say No to CBDC, programmable money could put an end to tax evasion since central banks and governments would have a complete record of every transaction made by everyone:

Money laundering, terrorist financing, any other unapproved transaction would become extremely difficult. Fines, such as for speeding or jaywalking, could be levied in real time, if CBDC accounts were connected to a network of “smart city” surveillance. Nor would there be any need to mail out stimulus checks, tax refunds, or other benefits, such as universal basic income payments. Such money could just be deposited directly into accounts. But a CBDC would allow government to operate at much higher resolution than that if it wished. Targeted microfinance grants, added straight to the accounts of those people and businesses considered especially deserving, would be a relatively simple proposition.

Other potential forms of programming applications include setting expiry dates for stimulus funds or welfare payments to encourage users to spend it quickly. Or blocking payments for certain goods or services deemed undesirable by the government of the day. In the most extreme case, programmable money could be used to strongly encourage “desirable” social and political behaviour while penalizing those who do not toe the line.

As Lyons points out, “The most dangerous individuals or organizations could simply have their digital assets temporarily deleted or their accounts’ ability to transact frozen with the push of a button, locking them out of the commercial system and greatly mitigating the threat they pose. No use of emergency powers or compulsion of intermediary financial institutions would be required: the United States has no constitutional right enshrining the freedom to transact.”

Neither, of course, does the EU, which in its march toward ever greater consolidation and centralisation of power is trampling over many of the basic constitutional freedoms and rights enshrined both in its own constitution as well as those of its constituent member states.

Now, both the Commission and the ECB want to fast track the creation of a digital euro. The ECB claims that the digital euro will not be programmable, but can its word be trusted?

I’ll let readers answer that one.

If a digital euro is established and successful, can anyone imagine the ECB and Commission not using it to monitor citizens or restrict how people can spend their money, or even whether they can spend their money at all? The Commission has already erected arguably the world’s largest mass digital censorship system and has just cancelled democracy in Romania in order to prevent a popular populist who is not on board with project Ukraine from winning.

Not so long ago, Lagarde candidly admitted in a recorded phone conversation with one of a pair of notorious Russian pranksters, whom she thought was Ukrainian President Volodymyr Zelensky, that one of the main objectives of the digital euro is control and surveillance of people’s spending.

Yet while the programmability features of CBDCs have generated considerable alarm — so much so that many central banks, like the ECB, now insist that their respective CBDCs will not be programmable — it’s a very different story for the stablecoins that the US government seeks to regulate with its GENIUS act. This is despite the fact that the stablecoins being issued by the likes of Tether, Circle, Stripe and Paypal will be just as programmable and surveillable as CBDCs, as Mark Goodwin and Whitney Webb reported last year in Bitcoin Magazine:

[W]ith stablecoins being just as programmable as CBDCs, the differences between stablecoins and a CBDC would revolve largely around whether the private or public sector is issuing them, as both would retain the same functionality in terms of surveillance and programmability that have led many to view such currencies as threats to freedom and privacy. Thus, Trump’s rejection of CBDCs but embrace of dollar stablecoins on Saturday shows a rejection of direct digital currency issuance by the Federal Reserve, not a rejection of surveillable, programmable money.

So the question remains, why wouldn’t the U.S. government just make a retail-facing CBDC? For starters, there are likely more limitations for a public sector entity on who and what they can restrict on their platforms. However, the main reason is mostly an economic one: they need to sell their debt to someone else to perpetuate the U.S. Treasury system.

Jean Rausis, a co-founder of decentralized trading platform Smardex, has also criticized the GENIUS Act, describing it as a gateway to a CBDC through private entities. Rausis argues that by controlling stablecoins, the government could freeze funds at will, similar to what a CBDC would enable.

In 2019, two senior IMF economists, Tobias Adrian and Tommaso Mancini-Griffoli, described programmable stablecoins as “synthetic” CBDCs, or sCBDCs. As a matter of fact, in a post for the IMF’s Blog Adrian wrote that sCBDCs have notable “advantages” over the full-fledged version, in which the central bank creates tokens or offers accounts to the public:

Synthetic CDBC outsources several steps to the private sector: technology choices, customer management, customer screening and monitoring including for “Know Your Customer” and AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) purposes, regulatory compliance, and data management — all sources of substantial costs and risks. The central bank merely remains responsible for settlement between trust accounts, and for regulation and close supervision including eMoney issuance. If done appropriately, it would never need to lend to eMoney providers, as their liabilities would be fully covered by reserves.

A synthetic CBDC is essentially a public-private partnership that encourages competition between eMoney providers and preserves comparative advantages.

It should hardly come as a surprise that the US government has opted for a public-private partnership in this arena with the private sector leading the charge, especially given how infested the Trump 2.0 administration is with Silicon Valley CEOs.

While the Administration’s GENIUS act just passed the Senate Banking Committee with bipartisan support, leaving it clear for the consideration of the full senate, the EU’s digital euro faces more legislative hurdles. The ECB and the Commission will need the approval of the European Parliament and Council of Minsters to pass legislation laying the groundwork for the EU’s CBDC. Even though the parliament and council are, generally speaking, rubber stamp institutions (h/t Gulag), their approval is not yet guaranteed.

Between Brussels, Frankfurt and the national capitals a power struggle has broken out over who gets to control the resulting digital euro system, according to a recent article by Häring (machine translated):

At the end of January, the German Bundestag’s EU Liaison Office summarized the status of discussions on the introduction of the digital euro in its report from Brussels No. 1/2025…

Strikingly, there is no mention of the (main) goal behind the introduction of a digital euro. The digital euro appears to be either a solution in search of a problem, or a project whose goal is not publicly communicated. These are not good conditions for overcoming differences of opinion and power struggles.

According to the report, little has happened since the EU Commission presented its proposal for regulation on the digital euro in June 2023…

The meeting of the finance ministers of the eurozone countries (Eurogroup) reported that there are “fundamental differences” between the member states. Furthermore, the ECB and the member states are arguing over their respective competencies. The ECB, for example, does not want to be influenced in the technical and structural design of the digital euro. However, some member states do not want to accept this, as they fear that the ECB will create a situation in which governments simply rubber-stamp outcomes.

Where could they possibly get such an idea?

Interestingly, there is also intense disagreement over how much financial privacy EU citizens should be allowed in a digital euro system:

The dispute over the protection of financial privacy is particularly lively. On the one hand, some governments want to monitor their citizens particularly closely while other governments and ECB have other ideas. The latter group wants to ensure that personal data from transactions in digital euros cannot be traced by the ECB and the national central banks. The former wants access to the data, arguing that it is important to combat money laundering.

The ECB has been assuring the public for some time that it will not have access to personal data. However, whether it can actually guarantee this seems questionable, to put it mildly.

The ECB and national governments are even at odds over who has the final say on the introduction of the digital euro. The ECB believes it can decide this alone. National gvernments, however, argue that the ECB needs their approval.

It hardly helps matters that the last person appointed to lead the legislative push for a digital euro, the Rapporteur Stefan Berger, stepped aside due to his own scepticism about the proposed CBDC. A recent outage in the ECB’s existing TARGET 2 payment system, causing delays for thousands of households and traders, has also raised questions about just how secure a digital euro system would be — especially if, as expected, it is accompanied by an intensification in the war on cash.