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 <p>As <a href="https://coinpaper.com/2833/china-will-use-blockchain-based-real-did-system-to-verify-the-identity-of-its-1-4-billion-citizens" rel="noopener noreferrer nofollow"><span>China</span></a> moves ahead with interest on its digital currency, the US debate remains unresolved. The diverging paths underline a growing policy gap over how digital money should compete, who benefits from rewards, and how payment systems evolve as commerce shifts onchain.</p>
 <p>China will begin paying interest on balances held in its official digital yuan, a shift that moves the state backed currency closer to a deposit like product and sharpens contrasts with the ongoing US debate over stablecoin rewards. The policy, confirmed by senior People’s Bank of China officials and reported by Bloomberg, takes effect Jan. 1 and allows commercial banks to pay interest to users based on the amount of digital yuan they hold.</p>
 <p>The change follows nearly a decade of pilots and testing for the digital yuan, also known as e CNY. Despite wide rollout across cities and use cases, adoption has lagged behind private payment platforms such as Alipay and WeChat Pay. Officials now frame interest payments as a way to make the digital yuan more practical for daily use, rather than just a digital cash substitute.</p>
 <p><a href="https://www.bloomberg.com/news/articles/2025-12-29/china-to-pay-interest-on-digital-yuan-in-bid-to-boost-adoption" rel="noopener noreferrer nofollow"><span>According to Lu Lei,</span></a> deputy governor of the People’s Bank of China, the system had processed 3.48 billion transactions by the end of November, totaling 16.7 trillion yuan. The central bank has highlighted these figures to show scale, while also signaling that incentives are needed to change consumer behavior in a crowded payments market.</p>
 <h2 id="interest-as-a-strategic-tool-for-adoption">Interest as a strategic tool for adoption</h2>
 <p>Chinese policymakers have described the interest feature as part of a broader effort to integrate the digital yuan into the banking system. Commercial banks will calculate and distribute interest, linking the currency more closely to demand deposit style accounts. As a result, the digital yuan begins to resemble a hybrid between cash and bank deposits.</p>
 <p>At the same time, the move reflects competitive pressure. Private platforms still dominate retail payments, and interest provides a direct financial reason for users to keep balances in official wallets. That incentive mirrors long standing tools used by banks globally to attract deposits.</p>
 <p>The announcement also arrives amid broader geopolitical context. China has consistently framed its digital currency project as a long term infrastructure upgrade, while critics in the West often view it through the lens of monetary competition and cross border influence.</p>
 <h2 id="us-stablecoin-rewards-face-political-resistance">US stablecoin rewards face political resistance</h2>
 <p>The timing of China’s decision has drawn attention in Washington, where lawmakers are revisiting whether stablecoin issuers should be allowed to offer rewards or interest. The Senate Banking Committee is preparing to mark up a market structure bill, with stablecoin rewards still under debate despite earlier provisions in the <a href="https://coinpaper.com/9732/bybit-and-block-scholes-report-genius-act-aims-to-reinvent-the-dollar-and-solidify-us-leadership-in-digital-assets" rel="noopener noreferrer nofollow"><span>GENIUS Act.</span></a></p>
 <p>Coinbase CEO Brian Armstrong warned that blocking rewards risks weakening US competitiveness. In a Jan. 7 post on X, he said China’s decision shows that paying interest benefits ordinary people and acts as a competitive advantage. He added that rewards on stablecoins would not reduce lending, but would influence whether US dollar <a href="https://coincodex.com/cryptocurrencies/sector/stablecoins/" rel="noopener noreferrer nofollow"><span>stablecoins</span></a> remain attractive globally.</p>
 <p>Industry advocates argue that rewards introduce competition in payments, rather than threatening banks. They point to research showing no clear link between stablecoin growth and reduced bank lending or community bank deposits. In contrast, critics within the banking sector warn that interest bearing stablecoins could pressure margins tied to deposits and card fees.</p>
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China Bets on Interest Bearing Digital Yuan as US Debates Stablecoin Rewards

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