Sam Lyman is the head of research at the Bitcoin Policy Institute and a former senior adviser and chief speechwriter to Treasury Secretary Scott Bessent.
A battle is raging on Capitol Hill over stablecoins — cryptocurrencies fixed to the value of the dollar. Banks want to ban Americans from earning interest for holding stablecoins; digital asset companies do not. If the banks prevail, they will protect their competitive moat and a critical revenue stream. But they will hamper global dollar competitiveness and strengthen China’s digital yuan. Unwittingly, America’s banks are doing Beijing’s bidding.
To understand how, start with the basics.
Stablecoins are a new form of internet money that combines the speed and efficiency of cryptocurrency with the trust and stability of the dollar. Stablecoins generate substantial yield because they are backed 100 percent by U.S. dollars and Treasury bills. The companies that hold these stablecoins want to share the interest they earn on them with users. They argue that doing so boosts dollar usage abroad and that banning these rewards would protect banks at the expense of consumers.
Banks could compete with digital asset companies by offering customers a larger share of the interest earned on their bank deposits. But this would eat into one of the banks’ most significant revenue streams. Instead, they argue that banning stablecoin rewards, which can be nearly nine times larger than yields offered by regular savings accounts, is necessary to prevent a deposit flight from traditional banks. By pushing to prohibit stablecoin interest payments, banks have brought a bill to regulate all digital assets to a standstill in the Senate.
No country is cheering this news more than China.
While Washington policymakers have spent the past several months dithering over the yield question, the Chinese Communist Party has rolled out a historic update to its digital yuan to compete with U.S. dollar-based stablecoins.
On Jan. 1, the People’s Bank of China launched a new version of its digital currency, the e-CNY, that shares interest payments with users for simply holding the token. The update is designed to supercharge adoption of the digital yuan. In effect, users’ digital wallets become de facto savings accounts. With dollar-backed stablecoins, a similar form of interest-sharing could be possible in the United States — but only if Congress allows it.
This is where banks have failed to consider the national security ramifications of their lobbying campaign to bar Americans from earning yield on their stablecoins. In a recent draft of digital asset legislation, banks have pushed for limited rewards based on transacting in stablecoins rather than holding them. By attempting to hobble stablecoins, banks have sought to protect their own profits. But they have also strengthened China’s efforts to undermine dollar hegemony by giving the CCP time to play catch-up.
China’s ambitions with the digital yuan are global. To circumvent the dollar system, it has integrated the currency into mBridge, an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) — the cross-border payment network dominated by the United States. Policymakers in Beijing have also outlined plans to export the digital yuan to countries in the Belt and Road Initiative. And China’s decision to make the currency interest-bearing makes it all the more appealing to regional businesses involved in cross-border trade.
For decades, China has pursued a strategy of “unrestricted warfare” in its engagement with the West. This concept holds that modern conflict extends beyond the physical battlefield to include economic and financial warfare. That is why, when President Donald Trump vowed to make America “the crypto capital of the world,” CCP leaders took him at his word and planned to counterbalance these efforts.
Last summer, Wang Yongli, a former vice president of the Bank of China, warned that stablecoins strengthen the dollar’s status as the world’s reserve currency and oppose China’s efforts to expand the yuan internationally. So he urged central bankers to accelerate the digital yuan’s development to take advantage of Washington’s gridlock on stablecoins. The Bank of China did exactly that.
How should U.S. policymakers respond?
They can start by recognizing that America’s most significant geopolitical rival has launched a direct challenge to dollar dominance with the release of an interest-bearing digital yuan. Stablecoins can counteract this threat. But for that to happen, Congress should act swiftly to allow digital asset companies to share stablecoin rewards. This would introduce much-needed competition to the domestic banking industry while also strengthening the dollar’s position globally.
The stablecoin market could grow to $4 trillion by the end of the decade, according to Citi analysts. Now imagine how large the stablecoin market could grow if users received even a small portion of interest payments. The benefits to the dollar would be historic. And the blow to the digital yuan would be decisive.
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