- China will allow interest on holdings of its digital yuan (e-CNY) starting in 2026.
- U.S. banks and crypto firms clash over how to apply the GENIUS Act’s prohibition on interest.
- A Coinbase executive warns that banning yields on stablecoins could weaken the United States’ global competitiveness.
The People’s Bank of China (PBOC) announced earlier this week that it will permit commercial banks to pay interest on holdings of the digital yuan, known as e-CNY.
The new framework is set to take effect on January 1, 2026. According to Vice Governor Lu Lei of the PBOC, the change will shift the e-CNY from a pure form of digital cash toward what he described as a “digital deposit currency,” a move intended to boost user adoption.
China has spent several years piloting the digital yuan across multiple cities and use cases, ranging from retail payments to public services. Adoption, however, has progressed more slowly than policymakers initially expected.
Analysts say allowing interest payments could make the e-CNY more competitive with traditional bank deposits and private digital payment platforms, potentially accelerating domestic use and, over time, supporting cross-border transactions.
In the United States, the debate centers on how the GENIUS Act’s ban on interest should be interpreted and enforced.
The law, which took effect in July, was designed to keep payment stablecoins focused on transactional use rather than savings or investment products.
Banking groups argue that letting stablecoins pay yields would blur the line between deposits and crypto assets, possibly threatening financial stability and diverting funds from regulated banks.
Industry crypto groups sharply disagree. In a December 18 letter to lawmakers, the Blockchain Association and more than 125 industry participants urged Congress to resist expanding or aggressively enforcing the ban on stablecoin rewards.
The coalition argued that claims tying stablecoin incentives to risks for community banks are not backed by evidence and warned that overly strict rules might drive innovation overseas.
The American Bankers Association, in a separate letter sent the same day, called for firm enforcement of the GENIUS Act. The ABA contended that some crypto firms are attempting to circumvent the law’s spirit by offering incentive programs that operate similarly to interest, potentially undermining traditional banking activities.
Coinbase executive warns the U.S. could lose ground to China
A senior executive at Coinbase has warned that U.S. policymakers could weaken the country’s position in the future of digital finance if stablecoin yield bans are implemented, even as China moves to make its central bank digital currency (CBDC) more attractive by allowing it to pay interest.
Faryar Shirzad, Coinbase’s chief policy officer, said this week that restricting rewards on dollar-backed stablecoins issued in the U.S. could hand a competitive edge to foreign rivals, particularly China.
Shirzad’s comments come amid intensifying debate in Washington over how to implement the recently enacted GENIUS Act, which prohibits dollar payment stablecoins from paying interest or direct returns to users.
In a post on X, Shirzad argued that global competition for digital money is heating up and pointed to China’s policy shift as evidence that incentives matter for the adoption of new forms of money.
He warned that limiting the functionality of dollar-backed stablecoins while other jurisdictions pursue more aggressive policy approaches could weaken the dollar’s global role.
Shirzad emphasized that the GENIUS Act was intended to ensure U.S.-regulated, dollar-backed stablecoins become primary settlement instruments in a tokenized global economy. He cautioned that mishandling the question of rewards could hand advantage to non-U.S. stablecoins and CBDCs at a critical moment.