China e-CNY Interest vs. US GENIUS Act Stablecoin Rules

China’s move to pay interest on the digital yuan (e-CNY) collides with the US GENIUS Act’s ban on stablecoin yield, threatening USD dominance in 2026.

The Yield Collision: How China’s Digital Yuan is Reshaping US Stablecoin Strategy

The Great Divergence of 2026

The first week of January 2026 has revealed a fundamental split in how the world’s two largest economies view the future of digital money. While the United States has solidified its regulatory moat through the GENIUS Act, China has pivoted toward a "digital deposit" model for its central bank digital currency (CBDC), the e-CNY.

China’s Pivot: From Cash to Deposits

For years, the digital yuan struggled with adoption, overshadowed by the convenience of WeChat Pay and Alipay. On January 1, 2026, the People's Bank of China (PBOC) changed the game. By allowing commercial banks to pay interest on e-CNY holdings, the digital yuan is no longer just "digital cash"—it is a competing financial asset.

PBOC Deputy Governor Lu Lei stated that this move allows the e-CNY to function as a "measure of monetary value and a store of value," making it a direct competitor to traditional bank deposits and, more importantly, to US dollar stablecoins.

The GENIUS Act: A Double-Edged Sword?

In the United States, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, signed in July 2025, brought much-needed clarity to the sector. However, Section 3 of the Act explicitly prohibits permitted payment stablecoin issuers from offering yield or interest to holders.

The goal was to protect the "fractional reserve" system—ensuring that trillions in deposits didn't flee community banks for higher-yielding digital assets. But in a global market, this restriction may be a liability.

The Coinbase Warning

Faryar Shirzad, Chief Policy Officer at Coinbase, has been vocal about this "competitive asymmetry." He argues that the banking lobby's push to extend the interest ban to "rewards" and "affiliate programs" is a "gift to China." If global users can earn 3-4% interest on a digital yuan while earning 0% on a regulated digital dollar, the choice for emerging market users becomes clear.

Conclusion: The Fight for the "Fortress Dollar"

As the Senate debates the final implementation rules of the GENIUS Act this month, the stakes couldn't be higher. The US must decide if it wants its stablecoins to be simple payment rails or a competitive, yield-bearing instrument that can defend the dollar's supremacy in an on-chain world.