Let Banks and Stablecoins Compete

Financial freedom requires fewer banking rules, not another Washington carveout

Hello friends,

The Senate Banking Committee is scheduled to mark up the Digital Asset Market Clarity Act on Thursday, and the fight over stablecoin “yield” is exposing a much bigger problem than crypto policy.

This is really about whether Washington will allow real competition in money and banking or keep doing what it always does: overregulate one group, carve out another, and call the result innovation.

Stablecoins are digital tokens designed to hold a stable value, often one dollar. Used well, they can make payments faster, cheaper, and more competitive. That matters. Families, businesses, and entrepreneurs should have access to better payment tools. The government should not stand in the way of useful innovation.

But the question before Congress is not whether stablecoins should exist. They should. The question is whether stablecoins are payment tools or deposit substitutes. That distinction matters.

Think of it this way: a prepaid debit card and a savings account are not the same product. One is mainly for payments. The other is for storing money and earning a return. A stablecoin used to move money quickly is like the first. A stablecoin that pays people to hold balances starts looking like the second.

The yield fight is a banking fight

The bill’s section-by-section summary says Section 404 would prohibit passive, deposit-like interest or yield on payment stablecoin balances while allowing “bona fide activity or transaction-based rewards” under future joint rules from the SEC, CFTC, and Treasury.

That sounds like a reasonable compromise. It may be. But the words matter. If “transaction rewards” become a backdoor way to pay people for holding balances, then Congress has not banned yield. It has merely asked lawyers to rename it.

That is why banking groups are warning that reward structures tied to balances, account tenure, or recurring activity could function like interest even if they are not called interest. Their joint letter argues that incentives acting like yield can reduce deposits and, in turn, reduce banks’ ability to lend.

They are right about the risk. But they are wrong if their answer is permanent protection from competition.

Banking is overregulated. That is the first distortion.

Community banks are not the enemy. They fund small businesses, farms, homebuilders, and families through local relationship lending. The ICBA estimates community banks hold $4.8 trillion in deposits supporting $4 trillion in lending, make 60 percent of small-business loans under $1 million, and provide 80 percent of agricultural lending.

Those institutions matter.

But they have also been buried under federal rules. Dodd-Frank, capital mandates, compliance costs, anti-money-laundering complexity, supervisory uncertainty, and the Federal Reserve’s constant manipulation of money and credit have distorted banking for years. Washington tied weights around banks’ ankles and now acts shocked when deposits look for a faster lane.

The free-market answer is not to put identical weights on stablecoins. The answer is to take the weights off banks.

Milton Friedman warned that policies should be judged by their results, not intentions. The intention behind digital-asset legislation may be clarity and innovation. Good. But if the result is a special lane for stablecoin platforms while community banks remain trapped in a regulatory cage, then Washington is not creating free markets. It is picking winners.

The CEA asked the wrong question

The White House Council of Economic Advisers tried to minimize the issue with a stablecoin-yield report estimating that banning yield would increase bank lending by only $2.1 billion and impose an $800 million welfare cost.

That sounds precise. But precision is not wisdom.

The real issue is not what happens if yield is banned in today’s young market. The issue is what happens if Congress normalizes stablecoins under a national framework and allows yield-like products to scale. Today’s stablecoin market is the starting line, not the finish line.

That is why I argued in RealClearMarkets that the CEA modeled the wrong baseline. Estimating the effect from today’s market is like estimating highway traffic by counting cars on a dirt road before the highway is built.

The whole point of CLARITY is to build the highway.

Don’t confuse freedom with favoritism

Crypto advocates say banning yield limits consumer choice. They have a point. Consumers should have better options and better returns. We need more competition in money, banking, payments, and credit.

But competition should come from better products, lower costs, stronger disclosure, and freer entry, not from one sector receiving a softer rulebook while another remains stuck under decades of federal micromanagement.

There are two coherent paths.

First, keep payment stablecoins in the payments lane. Let them compete on speed, cost, access, reliability, and programmability. But close loopholes that let issuers, exchanges, affiliates, brokers, or platforms disguise deposit-like interest as “rewards.”

Second, and better, deregulate banks so they can compete too. Let banks pay better returns. Let community banks innovate. Reduce compliance burdens. End the regulatory favoritism that protects the biggest institutions while squeezing smaller lenders.

The worst option is what Washington usually chooses: regulate one group too much, another group too little, and pretend the imbalance is the market.

It is not.

The bigger problem is government money

The deeper issue is that government has far too much control over money and banking in the first place.

In a truly free system, Americans would choose among competing currencies and payment systems. Banks, stablecoin issuers, credit unions, fintech firms, and decentralized tools would compete for trust. Fraud would be punished. Contracts would be enforced. Property rights would be protected. But the government would not micromanage money and credit from the top down.

There should be no central bank manipulating interest rates, rescuing favored institutions, and distorting capital allocation. The Federal Reserve has helped create cycles of cheap money, inflation, bailouts, and instability. Then Washington uses the chaos as an excuse for more control.

That is not capitalism. That is managed finance.

Stablecoins are interesting because they can create more competition. But Congress should not turn them into another government-shaped privilege. Financial freedom means no special favors for banks, no special favors for crypto, no bailouts, and no central planners deciding who gets the better lane.

The Bottom Line

Stablecoins can modernize payments. Banks should be freed to compete. Consumers deserve more options.

But Congress should not confuse a stablecoin yield loophole with financial freedom. If a stablecoin pays people to hold balances, it begins to act like a deposit substitute. If lawmakers allow that while keeping banks overregulated, they are not unleashing competition. They are engineering an advantage.

The better path is simple: close the loophole, deregulate banks, allow competing currencies, protect property rights, and let markets work.

CLARITY should bring legal certainty. It should not create Washington’s favorite lane.

Three Takeaways for Policymakers

1. Stablecoins should compete in payments, not through disguised deposit yield.
   Let them win on speed, cost, reliability, and access.

2. Banks are overregulated and should be freed to compete.
   Do not solve one distortion by creating another.

3. Real financial freedom means no special lanes.
   No favoritism for banks. No favoritism for crypto. No bailouts. No central-bank micromanagement.

Let people prosper,
Vance Ginn, Ph.D.
President, Ginn Economic Consulting
Chief Economist, Trump 45 White House OMB
www.vanceginn.com