China’s Digital Yuan to Offer Interest, Challenging U.S. Stablecoin Dominance

Coinbase's Chief Policy Officer, Faryar Shirzad, has warned that the United States may lose its leadership in digital finance to China due to proposed stablecoin regulations.

The People's Bank of China (PBoC) will allow interest payments on its digital yuan (e-CNY) from January 1, 2026.
The U.S. GENIUS Act prohibits stablecoin issuers from paying interest to holders, which could disadvantage U.S. dollar-pegged stablecoins.
Shirzad emphasized that this restriction creates a competitive disadvantage.

China's decision transforms the e-CNY into a savings asset, potentially increasing its appeal globally. The e-CNY balances will be managed within commercial banks' asset-liability frameworks and covered by deposit insurance.

The American Bankers Association advocates for strict enforcement of the interest ban, citing risks to traditional banking.
The Blockchain Association argues that current restrictions hinder innovation and benefit international competitors.

Global Implications

The debate affects the future structure of global digital settlements.
An interest-bearing e-CNY challenges non-interest-bearing U.S. dollar stablecoins as reserve assets.
If U.S. policy makes its digital dollar less attractive, capital and innovation may shift to more rewarding platforms.

This could weaken the dominance of USD-backed stablecoins in on-chain value transfers, affecting liquidity and trading volumes.