China’s decision to allow interest payments on holdings of its digital yuan is intensifying an already heated debate over the future design of stablecoins and digital money in major economies. By introducing yield into its central bank digital currency, China is signaling that digital cash can function not only as a payment tool but also as a store of value that benefits everyday users. The move is widely seen as an attempt to accelerate adoption and strengthen the competitiveness of state issued digital currency in both domestic and cross border contexts. In contrast, recent U.S. legislation has drawn a clear line between payment stablecoins and interest bearing instruments, defining stablecoins strictly as value transfer mechanisms. This divergence is exposing a growing policy gap at a time when digital money is increasingly viewed through a geopolitical and monetary competitiveness lens rather than a purely technological one.
In the United States, stablecoin issuers are prohibited from paying interest directly to holders, despite the fact that reserves are commonly invested in assets such as short term Treasuries that generate yield. Lawmakers framed this restriction as necessary to protect the traditional banking model, which relies on deposit funding to support lending activity. Banking groups have argued that allowing yield on stablecoins could accelerate deposit outflows, particularly from smaller institutions. Crypto firms counter that this stance preserves inefficiencies that disadvantage consumers and limits innovation in digital payments. Executives from companies such as Coinbase have argued that yield or reward mechanisms are critical for stablecoins to remain globally competitive, especially as other jurisdictions explore more flexible digital currency frameworks that directly benefit users.
The contrast with China’s digital yuan is now shaping policy narratives in Washington, where stablecoin rewards are increasingly framed as a strategic issue rather than a narrow regulatory detail. Supporters argue that interest bearing digital dollars could reinforce global demand for dollar based assets, increase Treasury market participation, and strengthen the currency’s role in digital finance. Critics warn that altering the current framework risks destabilizing bank funding models and complicating regulatory oversight. As stablecoins continue to scale globally, the debate highlights a broader question facing policymakers. Whether digital money should simply replicate existing financial rails or evolve into a more competitive alternative that shares economic value with users. The resolution of this issue is likely to influence not only domestic financial structure but also the international positioning of digital currencies in the years ahead.
