- China will allow interest payments on holdings of digital yuan (e-CNY) beginning in 2026.
- U.S. banks and crypto firms are clashing over how to interpret and enforce the GENIUS Act’s ban on interest-like payments.
- Coinbase policy chief warns that banning yield on stablecoins could weaken U.S. global competitiveness.
The People’s Bank of China (PBOC) announced earlier this week that commercial banks will be permitted to pay interest on holdings of the digital yuan, commonly known as e-CNY.
Under the new framework, which takes effect on January 1, 2026, PBOC Vice Governor Lu Lei said the change will shift e-CNY from a form of digital cash to what he called a “digital deposit currency,” a move intended to boost user adoption.
China has been piloting the digital yuan across multiple cities and use cases for several years, including retail payments and public services, but adoption has progressed more slowly than policymakers initially hoped.
Analysts say allowing interest payments could make e-CNY more competitive with traditional bank deposits and private digital payment platforms, potentially accelerating domestic usage and, over time, encouraging cross-border transactions.
In the United States, debate has centered on how to interpret and enforce the GENIUS Act’s ban on interest-like payments. The law, enacted in July, was designed to ensure payment stablecoins focus on transactional use rather than savings or investment products.
Banking industry groups argue that letting stablecoins pay yield would blur the line between deposits and crypto assets, potentially threatening financial stability and drawing funds away from regulated banks.
The crypto industry strongly disputes that view.
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 stablecoin incentives pose a threat to the banking system are not supported by evidence and warned that overly strict rules could push innovation overseas.
Meanwhile, the American Bankers Association, in a separate letter sent the same day, called for firm enforcement of the GENIUS Act. That group maintained some crypto firms are trying to circumvent the law’s intent by offering incentive programs that resemble rewards or interest, potentially undermining traditional banking activities.
Coinbase policy chief warns China could overtake the U.S.
A senior policy executive at Coinbase warned that the United States risks weakening its position in the future of digital finance if lawmakers ban yield-bearing stablecoins while countries like China enhance the appeal of their central bank digital currencies (CBDCs) by allowing interest payments.
Faryar Shirzad, Coinbase’s head of policy, said this week that restricting rewards on U.S. dollar stablecoins could hand a competitive advantage to foreign rivals, particularly China.
His remarks come amid a growing debate in Washington over how to implement the recently passed GENIUS Act, which prohibits payment stablecoins denominated in U.S. dollars from providing direct interest or returns to users.
In a post on X, Shirzad argued that global competition for digital money is intensifying and pointed to China’s policy change as evidence that incentives matter for the rollout and adoption of new forms of money.
He warned that limiting stablecoin functionality in the U.S. risks eroding the dollar’s global role if other jurisdictions adopt more aggressive approaches, and that a misstep on the issue of rewards could give non-U.S. stablecoins and foreign CBDCs an advantage at a critical moment.
Shirzad noted that the GENIUS Act was intended to ensure U.S.-regulated, dollar-backed stablecoins become core settlement tools in a tokenized global economy, but cautioned that overly restrictive implementation could undermine that objective and shift innovation abroad.