Why China’s Digital Yuan Is Challenging U.S. Stablecoin Rules
China’s decision to allow banks to pay interest on digital yuan (e-CNY) wallets from January 1 is intensifying scrutiny in Washington over whether U.S. dollar stablecoins are being placed at a structural disadvantage.
The move has reignited criticism of the GENIUS Act, which explicitly bans yield on U.S. stablecoins — just as global competition in digital money accelerates.
Key takeaways
- China now allows banks to pay interest on digital yuan wallet balances.
- U.S. stablecoins are barred from offering yield under the GENIUS Act.
- Coinbase CEO warns the policy gap weakens dollar competitiveness.
- The debate highlights growing tension between banks, crypto firms, and policymakers.
The policy shift allows Chinese commercial banks to integrate e-CNY balances directly into their balance sheets, effectively treating the central bank digital currency as an interest-bearing liability. Chinese officials have framed the change as a step toward deeper adoption of the digital yuan within the traditional banking system.
In contrast, U.S. regulation has moved in the opposite direction. The GENIUS Act, passed in July 2025, created a federal framework for dollar-pegged stablecoins but prohibited issuers from paying “any form of interest or yield,” a provision that has become increasingly controversial.
Yield bans collide with global competition
The divergence drew sharp criticism from Brian Armstrong, who warned that China’s move gives the digital yuan a meaningful competitive edge. In public comments, Armstrong argued that banning yield on U.S. stablecoins risks pushing innovation offshore and weakening the dollar’s position in digital payments and onchain commerce.
That concern is not new. Throughout 2025, crypto executives repeatedly urged lawmakers to allow regulated stablecoin issuers to share yield with users, warning that restrictive rules would entrench traditional banks while making U.S. digital dollars less attractive abroad.
Banks, however, have lobbied aggressively in the opposite direction. Industry groups have pushed regulators to extend the GENIUS Act’s yield ban to third-party platforms, arguing that interest-bearing stablecoins could drain deposits from the banking system — particularly from smaller lenders.
Crypto firms counter that such restrictions would concentrate economic benefits inside banks, undermine competition, and hand strategic advantages to countries willing to experiment more aggressively with digital currencies, including China.
The policy debate is unfolding against a shifting macro backdrop. Some industry leaders argue that a weaker dollar environment in 2026 could prompt U.S. policymakers to reassess the role of stablecoins as tools to reinforce dollar dominance in global trade. In that context, yield-sharing and real-world-asset-backed stablecoins are gaining attention as ways to preserve purchasing power rather than merely facilitate payments.
At the same time, legal uncertainty remains. While a full repeal of the GENIUS Act after the 2026 midterms is widely viewed as unlikely, changes in congressional control could influence enforcement priorities and delay broader crypto market structure legislation. Legal experts caution that stablecoin issuers should assume the current framework will remain in place — and document compliance carefully — even as international competitors move faster.
For now, the contrast is stark: China is experimenting with interest-bearing digital money to drive adoption, while the U.S. is prioritizing financial stability over yield. As global digital currency competition heats up, that trade-off is becoming harder for U.S. policymakers to ignore.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
