Washington: What to Watch Now

President Donald Trump on July 18th signed into law the "Guiding and Establishing National Innovation for U.S. Stablecoins" (GENIUS) Act, the first-ever federal cryptocurrency legislation. The bill, which passed the House of Representatives on July 17th on a strong 308-122 vote, sets up a regulatory regime for stablecoins. Among other things, it would require issuers to hold one-for-one reserves in either U.S. dollars or other highly liquid assets. It is a major win for the crypto industry, which believes that clear rules of the road will allow for expanded issuance and mainstream usage of stablecoins.

Also last week, the House passed the "Digital Asset Market Clarity" (CLARITY) Act, a significantly more complex bill that would create a regulatory framework for cryptocurrency generally, not just stablecoins. It clarifies that most cryptocurrencies would be treated as commodities and subject to regulation by the Commodity Futures Trading Commission (CFTC), with a secondary role for the Securities and Exchange Commission (SEC). It also includes disclosure and registration requirements, as well as consumer protections. It was approved on a surprisingly strong 294-134 bipartisan vote, with 78 Democrats supporting it—a vote that could boost momentum for the bill in the Senate. Senate Banking Committee Chairman Tim Scott (R-S.C.) has indicated that his committee is likely to consider a crypto market structure bill this fall.

The House also passed legislation that would prohibit the Federal Reserve from developing or launching a central bank digital currency (CBDC) on a more partisan 219-210 vote, with just two Democrats voting for it. The Fed has in recent years studied the feasibility of creating a CBDC, but Chair Jerome Powell has said that Fed won't do anything without direction from Congress. The measure had caused a mini meltdown on the House floor as conservatives pushed to meld the crypto bills and the anti-CBDC measure into one package. A procedural vote was held open for more than 10 hours on July 16th as negotiations took place before an agreement was reached to attach the CBDC bill to defense legislation at another time.

Congress approved a modified $9 billion rescissions bill. Both the Senate and House last week gave final approval to a request from the White House to rescind $9 billion in funding. The rescissions package included nearly $8 billion in claw backs from foreign aid programs and about $1.1 billion in withdrawn funding for the Corporation for Public Broadcasting, which helps to fund public television and National Public Radio. The House passed the package last month, but the Senate removed a provision that would have rescinded about $400 million in funding for the President's Emergency Plan for AIDS Relief (PEPFAR), a program launched during the George W. Bush administration that is widely credited with saving some 25 million lives worldwide. That necessitated the package returning to the House for a second vote. The outcome is a win for the White House, which again showed its ability to exert influence over Congress. But it may complicate the government funding process, as Democrats are increasingly concerned that the administration just won't spend money Congress has directed it to spend.

The House passed a bill modifying the accredited investor definition. The House approved legislation July 21st that would add a new way to qualify as an "accredited investor." Individual investors can qualify for the designation if they have a net worth in excess of $1 million or if they have annual income of more than $200,000 ($300,000 for couples). The SEC in 2020 added provisions that give the designation to investors with certain professional credentials. The new legislation would direct the SEC to create an exam that would provide an option for demonstrating financial sophistication. The Financial Industry Regulatory Authority (FINRA) would administer the free exam. It is part of a larger administration effort to reduce barriers to private markets for ordinary investors. The bill now moves to the Senate.

The appropriations process is picking up steam as Congress eyes its August break. Both the House and Senate are trying to make progress this week on some of the 12 appropriations bills that fund every agency and federal program. Congress is supposed to pass the bills before the start of the government's new fiscal year on October 1st. Getting all 12 passed before the annual deadline is a true rarity—it hasn't happened since 1996. Congress is already way behind for this year, but both chambers are hoping to pass at least some of the bills before they break for the annual August recess at the end of this month. If Congress cannot get the bills passed in time, it raises the possibility of a government shutdown or a temporary extension of current funding to avert a shutdown. We expect the process to be exceedingly difficult when Congress returns to Washington in September. Unlike the "One Big Beautiful Bill," the appropriations bills cannot be passed without Democrat support in the Senate, and Democrats may not be inclined to be helpful given the strong partisan atmosphere that currently exists on Capitol Hill.