China’s move to pay interest on e-CNY sparks lively debate over U.S. stablecoins.

As digital currencies reshape the global financial landscape, China is set to enhance its competitive edge by allowing interest payments on its digital yuan. This move comes amid ongoing debates in the United States surrounding the regulation of stablecoins, with industry leaders urging lawmakers to reconsider restrictions that may hinder innovation.

China to Allow Interest on Digital Yuan from 2026

The People’s Bank of China (PBOC) recently announced plans to enable commercial banks to offer interest on holdings of the digital yuan, also referred to as e-CNY, starting January 1, 2026. According to PBOC Vice Governor Lu Lei, this significant policy change will transform the e-CNY from merely a digital liquidity format into what he described as a “digital deposit currency,” aimed at boosting user adoption.

China has spent several years testing the digital yuan across various cities and use cases, including retail transactions and payment for public services. However, adoption rates have lagged behind initial expectations.

Analysts predict that allowing interest payments could enhance the e-CNY’s appeal compared to traditional bank deposits and private digital payment platforms, potentially accelerating its domestic usage and, eventually, international transactions.

US Debate Over GENIUS Act Restrictions

In the United States, the focus has shifted to the interpretation and enforcement of the GENIUS Act, which came into effect in July. This legislation aimed to limit the use of payment stablecoins, restricting their application to transactional purposes rather than savings or investment products.

Banking groups argue that allowing stablecoins to pay interest could blur the lines between deposits and crypto-assets, potentially jeopardizing financial stability and diverting funds from regulated banks. Conversely, cryptocurrency industry advocates strongly oppose these views.

In a letter dated December 18, the Blockchain Association, along with over 125 industry participants, urged Congress to prevent aggressive enforcement of the stablecoin reward ban. They contended that concerns regarding risks to community banks lack evidence and cautioned that overly stringent regulations could stifle innovation, pushing it offshore.

Meanwhile, the American Bankers Association called for stringent enforcement of the GENIUS Act in a separate letter. They asserted that certain cryptocurrency companies might be attempting to circumvent the law’s intent by promoting incentives that function similarly to interest, risking the viability of traditional banking operations.

Coinbase Executive Warns of Potential Loss in Global Competitiveness

Faryar Shirzad, Coinbase’s Chief Policy Officer, has warned that the United States may undermine its position in the future of digital finance if legislators continue to restrict interest-bearing stablecoins, especially as China moves to enhance its central bank digital currency (CBDC) by allowing interest payments.

Shirzad emphasized that limiting rewards on US dollar-backed stablecoins could give foreign competitors, notably China, a significant advantage. His comments coincide with a growing debate in Washington surrounding the implementation of the recently enacted GENIUS Act.

He asserted that global competition in digital currency is intensifying and cited China’s recent policy shift as evidence of the importance of incentives in promoting the adoption of new forms of currency. According to Shirzad, the US could weaken the global role of the dollar if it restricts the functionality of dollar-backed stablecoins while other jurisdictions pursue more aggressive strategies.

He concludes that mismanagement of reward structures could favor non-American stablecoins and CBDCs during a crucial period of digital transformation in the financial landscape.