China’s decision to allow interest payments on digital yuan balances is intensifying debate in Washington over whether U.S. dollar stablecoins risk becoming structurally uncompetitive under existing regulation, particularly the ban on yields imposed by the GENIUS Act.
From January 1, Chinese commercial banks have been permitted to pay interest on balances held in e-CNY wallets, a move officials say will help better integrate the central bank digital currency into bank balance sheets. The development has sharpened scrutiny of the Guiding and Establishing National Innovation for US Stablecoins Act, which explicitly prohibits stablecoin issuers from offering any form of interest or yield.
The shift prompted criticism from Brian Armstrong, chief executive of Coinbase, who warned that China’s move gives Beijing a clear competitive edge. He said the policy could have major implications for whether U.S. dollar stablecoins can remain competitive on the global stage.
Armstrong’s remarks build on warnings he has delivered to U.S. lawmakers over the past year. In April 2025, he argued that preventing regulated stablecoin issuers from paying interest would drive innovation offshore and weaken the position of the dollar in digital finance.
GENIUS Act, banks and the fight over yields
Signed into law in July 2025, the GENIUS Act established a federal framework for dollar-pegged stablecoins but included a provision barring issuers from paying interest. Since then, U.S. banks have pushed to extend the ban to third-party platforms, arguing that stablecoin rewards could drain deposits from the traditional banking system, especially from smaller institutions.
Crypto executives and industry groups have pushed back, warning that restricting stablecoin yields would entrench banks, undermine U.S. dollar competitiveness, and hand China’s interest-bearing digital yuan a structural advantage.
Stablecoins evolve in a shifting macro environment
The regulatory clash is unfolding alongside changes in the broader macroeconomic backdrop and the emergence of new stablecoin designs. Ron Tarter, chief executive of MNEE, said a potentially weaker dollar in 2026 could lead U.S. lawmakers to view dollar-denominated stablecoins as strategic tools for maintaining the dollar’s dominance in global trade.
He suggested this could speed up regulatory clarity for compliant U.S. dollar stablecoins, while more experimental models—such as algorithmic stablecoins or those not backed by the dollar—may face tougher hurdles.
Meanwhile, Reeve Collins, chairman of STBL, said the value proposition of stablecoins is shifting away from simple speed and access toward preserving purchasing power and beating inflation. He noted that this trend is driving demand for stablecoins backed by real-world assets and structures that share yield with users rather than concentrating returns with issuers.
Political risks and regulatory enforcement
Looking ahead to the 2026 midterm elections, Drew Hinkes, a partner at Winston & Strawn, said a full repeal of the GENIUS Act remains highly unlikely, even if control of Congress changes. However, he cautioned that shifts in political power could slow broader market-structure legislation and influence how aggressively rules are enforced.
Hinkes added that digital asset companies have long operated under regulatory uncertainty and that changes in Congress are unlikely to materially alter the outlook for stablecoin issuers. Tarter echoed that view, saying crypto firms should assume the GENIUS Act will remain in force and that additional legislation, such as the Clarity Act, is likely to pass before the midterms.
Even so, he stressed the importance of rigorous compliance, warning that a more aggressive stance from the Securities and Exchange Commission or the Commodity Futures Trading Commission could tighten oversight of U.S. stablecoins just as China accelerates its digital currency strategy.
