US Stablecoin Yield Ban Sparks Debate as China Pivots CBDC Strategy to Interest-Bearing Model

Competing Visions for Digital Currency Regulation

The global landscape for digital currency regulation is taking shape along divergent paths, with China moving to make its central bank digital currency more attractive through interest payments while the United States grapples with restrictions on stablecoin yields that industry leaders warn could harm competitiveness.

China Overhauls Digital Yuan Strategy

China is preparing a major overhaul of its central bank digital currency (CBDC) strategy aimed at boosting adoption of the digital yuan (e-CNY), which has struggled to gain traction despite years of pilot programs and research ^[1]. The People's Bank of China (PBOC) announced earlier this week that it will allow commercial banks to pay interest on clients' digital yuan holdings as part of a new framework set to take effect on January 1, 2026 ^[1].

Under the new policy, the e-CNY will transition from functioning as digital cash to operating as "digital deposit currency," according to PBOC Deputy Governor Lu Lei ^[1]. This strategic shift represents a significant change in how the world's second-largest economy approaches its CBDC implementation.

US Stablecoin Yield Restrictions Under Fire

The Chinese policy shift comes as debate intensifies in the United States over restrictions on stablecoin yields. In July, President Donald Trump signed the GENIUS Act into law, establishing the first US stablecoin regulatory framework at the federal level ^[1]. Under this legislation, stablecoin issuers are prohibited from offering yields directly to token holders, though this ban does not extend to third-party service providers ^[1].

Critics have argued that this creates a "loophole" allowing stablecoin issuers to circumvent the ban. Coinbase, for instance, offers yields on the stablecoin USDC, which is issued by Circle ^[1].

The restriction has become a flashpoint between the crypto industry and traditional banking sector. On December 18, the Blockchain Association, along with more than 125 crypto industry participants, urged Congress to reject the banking sector's efforts to expand the GENIUS Act's prohibition on stablecoin interest or yields ^[1].

On the same day, the American Bankers Association published a letter calling on lawmakers to strictly enforce the GENIUS Act's ban on yield-bearing stablecoins, arguing that some crypto exchanges are interpreting the law in ways that allow incentives similar to rewards, which could undermine traditional banking activity ^[1].

Market Dominance Despite Regulatory Uncertainty

Despite the ongoing regulatory debate, US dollar-pegged stablecoins continue to dominate the global market. Data from DefiLlama shows that the stablecoin market capitalization stands at approximately $307.95 billion ^[1]. Of that amount, non-USD stablecoins account for only around $1.4 billion ^[1].

European Union Tightens Crypto Reporting

Meanwhile, in Europe, new reporting requirements are set to reshape the regulatory landscape. In November, the German Bundestag voted to implement the EU's DAC 8 directive, which requires crypto service providers to collect user transaction data starting in 2026 and submit it to the Federal Central Tax Office in the following year ^[2].

The DAC 8 directive, based on the OECD standard CARF, aims to combat tax evasion in the crypto market through automated cross-border information exchange within the EU and with qualified third countries ^[2]. Crypto service providers must obtain tax self-disclosures from users and may freeze accounts or block transactions if customers fail to cooperate ^[2].

Violations of the new reporting requirements will be punishable with fines of up to 50,000 euros ^[2]. The implementation is expected to cost German administration around 11 million euros annually, plus one-time expenses exceeding 30 million euros, while costs for the private sector are estimated at 270,000 euros per year ^[2].