China Pays Interest on Digital Yuan, Coinbase CEO Warns U.S. Is Falling Behind

• Armstrong warns stablecoin reward bans could hurt U.S. payment competitiveness.
• China will pay interest on digital yuan starting January 2026.
• Crypto users say China’s move pressures U.S. regulators to act.

Coinbase chief executive Brian Armstrong has warned that blocking rewards on stablecoins could put the United States at a disadvantage just as other countries move faster to modernize their payment systems.

Armstrong pointed to China’s recent decision to pay interest on its own digital currency, saying it shows how governments are using incentives to encourage adoption. He said China views interest on digital money as a competitive advantage that benefits ordinary people, and warned that the U.S. risks falling behind if it takes the opposite approach.

For the unversed, China has made a simple but important change to its digital currency. From January 1, 2026, banks will be allowed to pay interest on money held in the digital yuan. This means the digital yuan will work less like cash and more like a bank account.

“This Is About Competition, Not Lending”

Armstrong argued that stablecoin rewards help consumers in the same way lower fees and better rates always have. He said fears that rewards would drain money from banks are overblown, noting that stablecoins today serve different purposes than traditional deposits.

He stressed that the real impact of rewards would be in payments, not loans. Lower-cost digital payments could save businesses and consumers billions of dollars, while making the financial system more efficient.

Broader Policy Argument Tells Another Story

Much of the broader policy case has been outlined by Coinbase policy executive Faryar Shirzad, who has argued that large banks oppose stablecoin rewards mainly because of competition in payments, not safety concerns. Shirzad has said banks earn hundreds of billions of dollars each year from deposits and card fees, and that lower-cost stablecoin payments could reduce those margins.

He also cited independent research hinting stablecoin growth has little impact on community bank deposits or lending, reinforcing the view that stablecoins and bank accounts serve different purposes.

Many in the crypto community said his comments only confirmed what they already expected. Some investors argued that U.S. policymakers will eventually allow stablecoin rewards, but only after large institutions have had time to position themselves first.

A few others had  other opinions. China’s move to offer interest on its digital currency puts real pressure on Western regulators. In their view, once users and merchants see digital money that actually pays a return, adoption will follow quickly. 

“We have officially reached the timeline where the CCP is offering better APY to retail users than US banks,” One X user said.

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