Article I of the Constitution grants Congress the power to “coin money and regulate the value thereof.” The Supreme Court has ruled that this power is exclusive and that Congress “may constitutionally secure the benefit of it to the people by appropriate legislation, and to that end may restrain, by suitable enactments, the circulation of any notes, not issued under its own authority,” including taxing the circulation of such notes.
The GENIUS Act of 2025 creates a new electronic pseudo-currency—payment stablecoins. Stablecoins are instruments that can be used to make payments at distance over the Internet and circumvent the need and expense of using banks and their payment systems. In many respects, the GENIUS Act stablecoins resemble banknotes issued by state-chartered banks that circulated as currency until the 1860s.
Until the passage of the GENIUS Act, Congress has, either directly or indirectly, taxed the circulation of notes issued by for-profit businesses that were commonly used as currency. Congress has the authority to tax stablecoins, and to tax them out of existence should a future Congress determine that such an action is in the national interest.
The GENIUS Act breaks with the longstanding congressional tradition of taxing currency issued by for-profit enterprises. Not only does the Act fail to tax the digital currency of for-profit stablecoin issuers, but the Act also fails to grant stablecoin regulatory agencies the power to impose fees on stablecoin issuers to defer the expense of stablecoin federal supervision and regulation.
This break from tradition has received little or no public attention. This essay reviews the historical record regarding the congressional delegation of its exclusive power to “coin money and regulate the value thereof” and contrasts this history with the provisions of the GENIUS Act.
The 2025 GENIUS Act and Stablecoins
The GENIUS Act defines a stablecoin as a digital asset that trades on a public distributed ledger that is designed to facilitate payments. Stablecoins are prohibited from paying interest. The law requires that stablecoins be redeemable for national currency, but states that stablecoins are not a national currency, a bank deposit, or a security. The Act is explicit in saying that a stablecoin issuer may not “market a payment stablecoin in such a way that a reasonable person would perceive the payment stablecoin to be—(I) legal tender, as described in section 5103 of title 31, United States Code.” And yet the Act also seemingly implies that GENIUS Act stablecoins can be accounted for and used as a cash equivalent in a host of financial transactions:
A payment stablecoin that is not [emphasis added] issued by a permitted payment stablecoin issuer shall not be—(1) treated as cash or as a cash equivalent for accounting purposes; (2) eligible as cash or as a cash equivalent margin and collateral for futures commission merchants, derivative clearing organizations, broker-dealers, registered clearing agencies, and swap dealers; or (3) acceptable as a settlement asset to facilitate wholesale payments between banking organizations or by a payment infrastructure to facilitate exchange and settlement among banking organizations.
While not explicitly a “national currency,” a GENIUS Act stablecoin seemingly can be treated as if it is a national currency in financial statements and many transactions.
A stablecoin issuer must hold, at a minimum, dollar-for-dollar reserves in Federal Reserve district bank deposits, bank deposits, very short-term government securities, or mutual fund shares that hold the equivalent thereof. These reserves provide the stablecoin issuer with interest income, back the issuer’s outstanding stablecoins, and “create the reasonable expectation” that the stablecoin will maintain a stable dollar redemption value. The stablecoin issuer must provide monthly public reports on the composition of its stablecoin reserves, which periodically must be audited by a licensed public accounting firm.
Until Congress created National Bank Notes in the mid-1860s, banknotes of state-chartered banks functioned as currency but were not recognized by Congress as legal tender.
The Act directs federal bank regulatory agencies to draft and issue chartering, safety and soundness, and anti-money laundering rules and regulations for stablecoin issuers. The Act does not appropriate any funds to defer the cost of issuing and enforcing stablecoin regulations. Nor does the Act impose any examination fees or franchise taxes on stablecoin issuers, or delegate the authority to impose such fees or taxes to federal regulatory agencies.
The Historical Delegation of Congressional Power to Coin Money
In 1791, President George Washington signed an act that created the first Bank of the United States. Each of the bank’s eight branches issued banknotes that were redeemable for “legal money”—gold and silver coins and specie—at the issuing branch. Its banknotes functioned as national currency and were accepted as payment for all federal taxes. The Treasury initially retained a 20 percent interest in the bank but later sold its shares. In total, the Treasury earned over $1.1 million in dividend income on its shares and a capital gain of $671,860 when it sold its shares.
The War of 1812 reduced the federal government’s tariff revenues, forcing the Treasury to issue bonds. The Bank of the United States’ charter expired in 1811, leaving the Treasury without a fiscal agent to market a bond issue. The Act for a National Bank created the second Bank of the United States in part to act as the Treasury’s fiscal agent. The bank’s 25 branches issued banknotes, redeemable for specie on demand, that were used as currency in commercial transactions and were accepted as payment for federal taxes, customs duties, and federal land sales. In creating the bank, Congress retained a 20 percent interest for the Treasury. In addition to dividend income on its shares, the Act required the bank to pay Treasury $1.5 million, “in consideration of the exclusive privileges and benefits conferred by this act.”
Until Congress created National Bank Notes in the mid-1860s, banknotes of state-chartered banks functioned as currency but were not recognized by Congress as legal tender. State banknotes promised redemption in gold or silver when presented at the issuing bank. However, unless the bank was chartered in a state that had an insurance scheme, the promise was not backed by a state government guarantee.
Banknotes issued by state-chartered institutions were commonly accepted for payment in commercial transactions in lieu of federally designated forms of legal money, but typically were valued at a discount from their par value. The par value discount varied based on the distance from, and the perceived credit standing of, the bank that issued the banknote. These discounts were widely believed to discourage interstate commerce.
GENIUS Act stablecoins closely resemble state-chartered banknotes. Neither is recognized as a national currency, yet both promise redemption at par value in national currency. Neither instrument’s redemption promise is guaranteed by the federal government. State-chartered banknotes were commonly traded at a discount from par value, and so may GENIUS Act stablecoins.
The Legal Tender Act of 1863 imposed a tax on all circulating state-chartered banknotes equal to a tax Congress had imposed on National Bank Notes. The National Banking Act of 1864 imposed an additional tax of 10 percent on the value of state-chartered banknotes paid out by any bank. The latter Act effectively taxed state banknotes out of circulation.
In 1863, Congress also passed the National Bank Act, which created the Office of the Comptroller of the Currency (OCC) and empowered it to charter national banks—privately owned for-profit entities that were required to issue National Bank Notes. National banks had to purchase and deposit specific interest-bearing Treasury bonds with the Treasury and, in return, received National Bank Notes. A bank was required to maintain the market value of its Treasury bond collateral on deposit above 111 percent of the value of National Bank Notes it had been issued. By design, National Bank Note issuance was a profitable business. Banks earned interest (6 percent in 1863) on the bonds they deposited with the Treasury, and National Bank Notes did not pay interest.
National Bank Notes circulated at par because the notes were required to be redeemable in specie at par by the issuing bank, and the Treasury was empowered to liquidate the collateral on deposit and use the proceeds to redeem National Bank Notes of banks that failed or suspended specie redemptions. National Bank Notes could be used to satisfy all debts except federal customs duties or interest payments on Treasury debt.
In return for the delegated power to issue a national currency, Congress imposed a franchise tax on circulating National Bank Notes:
Such associations authorized under this act shall, semi-annually, … pay to the comptroller of the currency, in lawful money of the United States, one per centum on the amount of circulating notes received by such association.
Congress adjusted the collateral requirements and franchise tax on National Bank Notes over time to reflect changes in the interest rates on Treasury bond collateral and ensure note issuance remained profitable. For example, the Gold Standard Act of 1900 lowered the franchise tax and increased the allotment for National Bank Notes issued (from 90 percent to 100 percent) on notes collateralized with 2-percent Treasury bonds.
From National Bank Notes to Federal Reserve Notes
In the wake of the Panic of 1907, Congress passed the Aldrich-Vreeland Act, which empowered the secretary of treasury to authorize the issuance of emergency temporary National Bank Notes and created the National Monetary Commission “to examine the United States monetary policy, evaluate alternative monetary regimes, and recommend a course for monetary policy going forward.” The findings of the commission were influential in discussions of banking system reforms that culminated in the creation of the Federal Reserve System.
The Act authorized the creation of emergency National Bank Notes that were collateralized by assets other than Treasury bonds, but “should be treated in the same way” as National Bank Notes. The Act imposed a franchise tax rate on outstanding notes that increased each month after issuance to ensure that, once issued, the notes would be quickly withdrawn from circulation. The 1914 outbreak of World War I created a specie shortage. Treasury Secretary William Gibbs McAdoo authorized the issuance of this emergency currency, which helped avert a financial crisis. The notes were quickly retired from circulation.
The Federal Reserve Act of 1913 created a new national currency, Federal Reserve Notes. Designed to replace National Bank Notes, Federal Reserve Notes were issued by the twelve Federal Reserve district banks created by the 1913 Act. According to the Act,
Said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues.
The 1913 Federal Reserve Act includes an explicit franchise tax on district banks’ earnings assessed for the express privilege of providing this new national currency:
After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, … all the net earnings shall be paid to the United States as a franchise tax, except that one-half of such net earnings shall be paid into a surplus fund until it shall amount to forty per centum of the paid-in capital stock of such bank.
The Victory Liberty Loan Act of March 1919 allowed district banks to keep all net earnings after dividends and expenses until their surplus account equaled their subscribed capital, after which district banks were required to pay 90 percent of their net earnings to the US Treasury.
Is the GENIUS Act a reflection of congressional genius, or did industry lobbyists just pull off the Great Stablecoin Heist of 2025?
The Glass-Steagall Act of 1933 created the Federal Deposit Insurance Corporation and capitalized it by requiring each Federal Reserve district bank to subscribe to FDIC shares in an amount equal to half of the bank’s surplus account. The shares had no voting rights and did not pay dividends. In return, Congress eliminated the Fed’s franchise tax on net earnings. Yet, as the Federal Reserve Board’s 1933 annual report explained, the change had little practical importance, because, “the investment of $139,000,000 of their surplus in the stock of the Federal Deposit Insurance Corporation reduced the surplus to a point where it would have taken a considerable number of years to bring that surplus up to 100 percent of the subscribed capital.” Congress retired the FDIC’s stock in 1947 and directed the FDIC to cancel Fed district banks’ Class B shares and return the invested funds to the Treasury.
In 1934, Congress passed the Industrial Advances Act which created Federal Reserve Section 13(b) powers that allowed district banks to make working capital loans to industrial and commercial businesses that were unable to secure credit on a reasonable basis from normal sources. To fund these loans, Congress directed the Treasury to loan to each district bank an amount equal to the surplus funds Congress had taken from it the prior year. District banks were required to remit to the Treasury 2 percent interest on these loans.
In 1947, the Federal Reserve Board voluntarily reinstated a franchise tax on Federal Reserve Note issuance by resuming the practice of remitting 90 percent of district bank net earnings after dividends to the Treasury. The policy was designed to preempt Congress from reimposing a franchise tax in legislation and to facilitate the Fed’s plan to increase short-term interest rates, since, with the franchise tax, the majority of any increase in Fed profits would accrue to the Treasury. The Fed maintained its self-imposed franchise tax policy until 1996.
Beginning in the 1990s, a series of congressional appropriation bills indirectly taxed Federal Reserve district banks by limiting the surplus balances district banks were allowed to accumulate or by mandating specific remittance payments to the Treasury. These bills, which include the Omnibus Budget Reconciliation Act of 1993, the omnibus spending bill of 1999, the 2015 “FAST Act,” the Bipartisan Budget Act of 2018, and the “Economic Growth, Regulatory Relief, and Consumer Protection Act” of 2018, imposed decreasing limits on the system’s consolidated surplus account balance and required excess surplus balances and earnings to be remitted to the Treasury.
On a consolidated basis, the twelve Federal Reserve district banks have had negative net earnings since early September 2022. However, it is the net earnings after dividend payments of each individual district bank and the bank’s maximum legal surplus that determines whether a district bank remits net earnings to the Treasury.
As of September 24, 2025, two district banks, Atlanta and St. Louis, still have positive net earnings after dividend payments and remit earnings to the US Treasury. The other ten Federal Reserve district banks have negative net earnings and will likely continue posting losses for several years. The CBO estimates that these banks are unlikely to recover their accumulated losses and resume making remittances to the Treasury until sometime after 2030.
Precedent and the GENIUS Act
The GENIUS Act breaks over 200 years of congressional precedent by delegating congressional authority to “coin money and regulate the value thereof” to private enterprises that will profit by issuing a new currency without imposing a franchise tax on the new currency. Moreover, the GENIUS Act does not appropriate funds to defer the bank regulatory agencies’ costs incurred to draft and issue the new regulations mandated by law. Nor does the Act impose fees on private stablecoin issuers to defer ongoing supervisory costs. If the cost of bank supervision is any guide, the cost of stablecoin supervision and regulation is likely to be substantial.
The Constitution vests Congress with the power to collect seigniorage profits from its exclusive right to determine the coin of the realm. Congress spent considerable time debating and exercising this power by imposing franchise taxes on banknotes issued by state and national banks, as well as on the issuance of Federal Reserve Notes. To the best of my knowledge, however, there was no public discussion of these issues as Congress debated the provisions of the GENIUS Act.
Are the unusual benefits accorded stablecoin issuers the result of an unintended legislative oversight, or did Congress intentionally award the stablecoin industry the total seigniorage profits, at least a part of which should accrue to taxpayers? Is the GENIUS Act a reflection of congressional genius, or did industry lobbyists just pull off the Great Stablecoin Heist of 2025?