Global Dynamics in Digital Currency: A Comparative Analysis of Regulatory Approaches
China’s Strategic Move: Interest on Digital Yuan Holdings
This week, the People’s Bank of China (PBOC) formally announced a significant policy shift regarding the digital yuan, commonly referred to as e-CNY. Effective January 1, 2026, commercial banks will be permitted to pay interest on e-CNY holdings. PBOC Deputy Governor Lu Lei articulated that this initiative aims to transition the e-CNY from a mere form of digital cash into what he terms a “digital deposit currency.” This transformation is strategically designed to enhance user adoption and engagement with this state-sponsored digital currency.
Despite several years of piloting the digital yuan across various urban centers and applications—including retail transactions and public service payments—adoption rates have lagged behind initial projections. Analysts suggest that the introduction of interest payments on e-CNY holdings could render this digital currency more competitive vis-à-vis both traditional bank deposits and private digital payment platforms. Such a shift may potentially catalyze increased domestic utilization while also fostering the e-CNY’s role in cross-border transactions over time.
The U.S. Regulatory Landscape: The GENIUS Act Controversy
In stark contrast to China’s proactive measures, the United States finds itself embroiled in contentious debates surrounding the interpretation and enforcement of the recently enacted GENIUS Act. This legislative framework, which took effect in July, aims to restrict payment stablecoins from engaging in interest-bearing activities. Proponents argue that such restrictions are essential to maintain a clear demarcation between deposits and cryptocurrency assets, thereby safeguarding financial stability and preventing capital flight from regulated banking institutions.
Conversely, representatives from the cryptocurrency sector vehemently contest these assertions. In a coalition letter addressed to lawmakers on December 18, the Blockchain Association, alongside over 125 industry stakeholders, implored Congress to refrain from broadening or rigorously enforcing the ban on stablecoin incentives. They contended that claims regarding the detrimental impact of stablecoin rewards on community banks lack empirical support and cautioned against overly stringent regulations that could stifle innovation within U.S. borders.
The American Bankers Association articulated a contrasting perspective in a separate correspondence sent concurrently, advocating for strict adherence to the GENIUS Act’s guidelines. They posited that certain crypto entities are attempting to exploit loopholes within the legislation by offering reward-like incentives akin to interest payments, thereby undermining traditional banking practices.
The Implications for U.S. Global Competitiveness
A notable voice within this discourse is Faryar Shirzad, Chief Policy Officer at Coinbase, who has issued warnings regarding the potential repercussions of constraining interest-bearing capabilities for U.S.-issued stablecoins. He posits that such legislative limitations may inadvertently cede competitive advantages to foreign entities, particularly China, as it endeavors to enhance its Central Bank Digital Currency (CBDC) by facilitating interest payments.
Shirzad’s remarks are particularly salient given the intensifying global competition surrounding digital currencies. He emphasized that innovations in monetary incentives are crucial for fostering widespread adoption of new financial instruments. According to Shirzad, should the United States impose restrictive measures on dollar-backed stablecoins while other jurisdictions pursue more aggressive strategies, it risks diminishing the global stature of the U.S. dollar.
He further argued that the intentions behind the GENIUS Act were to ensure that U.S.-regulated dollar-backed stablecoins emerge as primary instruments for settlement within an increasingly tokenized global economy. Failure to adeptly navigate the complexities surrounding rewards could inadvertently empower non-U.S. stablecoins and CBDCs during a pivotal juncture in international finance.
