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Coinbase believes that a U.S. ban on stablecoins could give China a competitive edge.
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China will begin allowing interest on digital yuan from Jan 1, increasing its appeal to users.
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The GENIUS Act debate is heating up as crypto firms clash with banks over implementation.
A top executive from Coinbase has said that the United States may lose ground in global crypto if they ban interest or rewards for U.S. stablecoins. This warning comes at a time when China is making their own digital currency more attractive.
As U.S. legislators discuss how to enforce GENIUS Act, a debate is taking place. China’s central banks has also changed its approach towards the digital yuan.
Why Coinbase is concerned
Faryar Shirzad said in a tweet that the issue had become more serious since China announced that it might allow interest payments on the digital currency known as e-CNY.
He said that countries are increasingly competing over digital money and that rewards or incentives can have a significant impact on the currencies people and business choose. If the U.S. bans incentives on dollar-based stabilizecoins, users might turn to foreign stablecoins and digital currencies instead.
Coinbase believes that the GENIUS Act is meant to help U.S. regulated, dollar-backed stabilizecoins become the primary tools for digital payment worldwide. Shirzad warned against banning rewards as it could harm that goal and weaken U.S. dollars’ role in the global economy.
China’s Digital Yuan will start paying interest
China’s central banks announced that from January 1, 2026, banks can pay interest on digital Yuan balances.
This change means that the digital yuan no longer acts only as digital cash. It will now work more like a deposit in a bank that can earn interest. Chinese officials hope that this will encourage more people use it since adoption has been slower despite years testing.
Interest could help the digital currency compete with traditional bank accounts and popular private payment applications. It could also make international payments easier in countries that work closely with China’s financial system.
Related China To Launch Digital RMB 2.0 On Jan 1 with Smart Contract Integration
GENIUS Act puts US Stablecoins in a Crossroads
The GENIUS Act (which became law in July) prohibits stablecoin issuers to pay interest or rewards directly back to users. The lawmakers wanted stablecoins used primarily for payments and not as investment or savings products.
There is a debate about how strict this ban should be. Crypto companies think that enforcing the ban too aggressively may make U.S. Stablecoins less appealing than foreign ones. Banking groups disagree and argue that allowing rewards could make stablecoins look too much like bank deposits, which could threaten financial stability.
Industry Groups Differ
On December 18, the Blockchain Association, along with more than 125 crypto firms, asked Congress to not expand or strictly enforce its ban on stablecoin incentives. They claim that there is no evidence that rewards hurt community banks, and warn that heavy regulations could push crypto innovation overseas.
The American Bankers Association also sent a letter that day calling for strict enforcement. The group claimed that some crypto companies already offer reward-like programs which resemble interest payments, and could attract money away from traditional banking institutions.
The GENIUS Act could have a significant impact on the U.S. Financial System. With China making their digital currency more attractive and the U.S. considering stricter limits on stablecoins.
Related FDIC Moves to formalize how banks can issue stablecoins under GENIUS Act
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