Stablecoin Yield War: How a US Ban Could Hand China's Digital Yuan a Trillion-Dollar Advantage

A contentious clause within the proposed U.S. CLARITY Act, which seeks to establish a comprehensive crypto market structure, has ignited a fierce debate that pits domestic banking interests against global financial competitiveness.

At the heart of the dispute is a prohibition on yield-bearing stablecoins, a move fiercely criticized by industry leaders like SkyBridge Capital’s Anthony Scaramucci and Coinbase CEO Brian Armstrong. They argue that by banning yield on dollar-pegged stablecoins, U.S. policymakers are unilaterally disarming in a critical arena of monetary innovation, directly enhancing the appeal of China’s Digital Yuan, which is actively exploring interest-bearing features. This policy clash exposes a fundamental tension: the desire to protect traditional bank deposit bases—with Bank of America warning of potential 6 trillion dollars in outflows—against the strategic imperative to maintain the dollar’s dominance in the evolving digital age. The outcome could redefine the future corridors of global capital flow.

The CLARITY Act’s Yield Ban: A Well-Intentioned Misstep?

The legislative journey for U.S. crypto regulation has been long and winding, with the CLARITY Act representing the latest and most ambitious attempt to create a coherent national framework. A key provision, however, has become a lightning rod for criticism: an expanded prohibition that prevents crypto exchanges and service providers from offering customers any form of yield or interest on their stablecoin holdings. This rule builds upon earlier foundations laid by the GENIUS Act, which first sought to regulate dollar stablecoins. Proponents, often aligned with traditional banking interests, frame the ban as a critical consumer protection measure. They argue it prevents crypto companies from engaging in risky, unregulated lending activities with stablecoin reserves, activities that could lead to destabilizing collapses similar to past crypto lending failures.

This defensive posture, however, is viewed by critics as a profound misreading of both the technology and the geopolitical moment. The ban does not merely restrict speculative lending; it outlaws a fundamental financial incentive—the time value of money. In a global market, capital flows to where it is treated best. By mandating that U.S. dollar stablecoins remain inert, zero-yield instruments, the regulation effectively strips them of a key competitive feature. Anthony Scaramucci cut to the core of the issue with a pointed rhetorical question: “In the meantime, the Chinese are issuing yield, so what do you think the emerging countries will choose as a rail system, the one with or without yield?” This framing transforms the debate from one of domestic financial safety to one of international monetary strategy, asking whether the U.S. is willing to cede soft power and utility for perceived stability.

The immediate consequence is a potential dampening of innovation within the U.S. digital asset ecosystem. Stablecoin issuers and platforms are forced to offer a less attractive product compared to global peers operating under more permissive regimes. More insidiously, it signals to developers and entrepreneurs that the U.S. regulatory environment may prioritize protecting incumbents over fostering a competitive new financial layer. As the digital economy expands, this stance risks pushing the next wave of fintech innovation to more welcoming jurisdictions, with long-term implications for American technological leadership.

Anthony Scaramucci’s Warning: Ceding the “Rail System” to China

The voice of Anthony Scaramucci, a former White House communications director and founder of the investment firm SkyBridge Capital, carries significant weight in both traditional finance and crypto circles. His critique of the yield ban is particularly stark, rooted in a worldview of global monetary competition. Scaramucci doesn’t merely see the CLARITY Act’s provision as poor policy; he sees it as a strategic blunder that weakens the U.S. dollar’s architecture at a pivotal time. His statement, “The whole system is broken,” reflects a frustration with a political and regulatory process he perceives as captured by incumbent banking interests unwilling to tolerate competition.

The crux of Scaramucci’s argument lies in the asymmetry between the U.S. and Chinese approaches to their respective digital currencies. While U.S. regulators move to suppress yield mechanisms for privately-issued dollar stablecoins, the People’s Bank of China (PBOC) is moving in the opposite direction. In January 2026, the PBOC began allowing commercial banks to pay interest on Digital Yuan (e-CNY) deposits. This is not a minor technical adjustment; it is a deliberate design choice to make the state-backed digital currency attractive as a savings and transactional tool. By offering yield, China is integrating the Digital Yuan into the traditional financial incentive structure, making it a viable alternative to bank deposits and, crucially, to inert digital dollars.

For Scaramucci, this creates an obvious choice for emerging markets and nations seeking efficient “rail systems” for trade and finance. Will they adopt a digital dollar system that is legally barred from offering any return on capital, or will they gravitate toward a digital yuan that can be integrated into interest-bearing accounts and monetary policy tools? The yield-bearing feature provides a tangible economic reason to choose one infrastructure over the other. In this context, the U.S. ban is seen not as prudent regulation, but as an unforced error that handicaps the dollar’s most innovative proxies in the race for digital currency adoption. It confuses controlling risk at home with winning influence abroad, potentially at a great cost to long-term dollar hegemony.

The Bank’s Trillion-Dollar Fear: Protecting Deposits vs. Stifling Progress

The intense lobbying behind the yield prohibition is no mystery; it is driven by one of the most powerful forces in any economy: the protection of established business models. The warnings from traditional banking leaders, most notably Bank of America CEO Brian Moynihan, reveal the staggering scale of what they believe is at stake. During a recent earnings call, Moynihan highlighted that widespread adoption of yield-bearing stablecoins could precipitate up to 6 trillion dollars in deposit outflows from the traditional banking system. This figure underscores the existential threat banks perceive from a highly efficient, digitally-native competitor to the basic savings account.

This fear is economically rational from the banks’ perspective. Bank lending capacity is fundamentally built on their deposit base. A mass migration of deposits into stablecoin-based yield products—which could theoretically offer better returns by operating with different cost structures and risk parameters—would directly shrink the capital available for mortgages, business loans, and credit lines. Regulators, whose primary mandate includes the stability of the traditional financial system, are naturally sympathetic to this concern. The yield ban, therefore, can be viewed as a preemptive regulatory moat, built to protect a vital component of the existing economic engine from disruptive competition.

However, critics like Coinbase CEO Brian Armstrong argue that this defensive crouch misses a larger point. Armstrong contends that “Rewards on stablecoins will not change lending one bit, but it does have a big impact on whether U.S. stablecoins are competitive.” His perspective is that the yield offered on stablecoins often comes from low-risk, short-term instruments like Treasury bills, not from the kind of fractional reserve lending that banks engage in. The competition, he suggests, is less about lending and more about efficiency and user choice. By focusing solely on shielding bank deposits, the U.S. risks creating a less dynamic, less attractive digital dollar ecosystem. The policy prioritizes the preservation of 20th-century banking structures over the fostering of 21st-century digital dollar networks, a trade-off whose consequences may only become fully apparent in the next decade.

The Digital Currency Crossroads: U.S. Restriction vs. Chinese Incentive

The U.S. Path (CLARITY Act Framework)

• Core Policy: Prohibition on yield/interest for stablecoin holders.
• Stated Goal: Consumer protection, prevention of risky lending, financial stability.
• Industry Perception: Protectionism for incumbent banks, suppression of competition.
• Potential Outcome: Safer, but less competitive and innovative digital dollar ecosystem.

The Chinese Path (Digital Yuan Development)

• Core Policy: Active exploration of yield-bearing features for e-CNY deposits.
• Stated Goal: Enhance adoption, integration with monetary policy, improve attractiveness.
• Global Perception: Strategic move to increase currency utility and international appeal.
• Potential Outcome: A more functionally complete CBDC, attractive as a trade and reserve “rail.”

The Global Decision

• For Emerging Markets: Choose between a high-utility, yield-bearing digital yuan or a safe but inert digital dollar framework.
• For Capital: Flows toward the system that offers the best combination of safety, efficiency, and return.
• The Stakes: Influence over the foundational rails of future digital trade and finance.

The Mechanics of Stablecoin Yield: Beyond “Risky Lending”

To fully understand the debate, one must move past the political rhetoric and examine the technical reality of how stablecoin yield is typically generated. The common regulatory and banking narrative often paints a picture of shadowy, high-risk lending pools, but the reality is usually far more mundane and integrated with the traditional financial system. The vast majority of reputable, fully-reserved stablecoins like USDC (issued by Circle) or USDP back their tokens with assets held in secure, regulated custodians. These reserve assets predominantly consist of short-term U.S. Treasury bills and similar high-quality liquid assets.

The yield in question arises from the interest earned on these Treasury reserves. When a user holds a stablecoin, they are essentially holding a digital claim on a slice of this reserve portfolio. In a competitive market, platforms or issuers can choose to pass a portion of the interest earned from the Treasuries back to the holder as a reward. This process does not inherently increase risk; it simply shares the existing revenue from ultra-safe government bonds. It makes holding a stablecoin functionally similar to holding a money market fund, a well-established and strictly regulated financial product. The prohibition, therefore, is less about preventing danger and more about controlling who is allowed to offer this type of savings-adjacent product.

This is where the critique of the ban as anti-competitive gains its strongest footing. Traditional banks are allowed to take in deposits, buy Treasuries with a portion of those funds, earn the yield, and pay a smaller interest rate to depositors—keeping the difference as profit. The stablecoin model proposes a more direct, efficient pass-through of that yield. The banking industry’s lobbying for a yield ban can thus be interpreted as an effort to outlaw a more efficient technological competitor to one of their core profit centers. It’s a battle over the right to intermediate the safest assets in the world, and the CLARITY Act’s current language sides decisively with the old guard, potentially at the expense of the dollar’s digital vitality.

The Road Ahead: Can the Dollar Remain Competitive in a Digital Age?

The conflict encapsulated by the stablecoin yield ban is a microcosm of a broader challenge for the United States: how to govern a disruptive technological revolution without stifling it and surrendering strategic advantage. The path forward is fraught with complexity. On one side is the legitimate need for consumer protection and financial stability, principles that cannot be abandoned. On the other is the imperative for monetary innovation and geopolitical competitiveness, which require a degree of regulatory flexibility and foresight.

The immediate legislative battle will focus on whether the yield prohibition can be modified or whether exceptions can be carved out for fully-reserved, transparently audited stablecoin models. Industry advocates will push for a framework that distinguishes between risky, algorithmic “lending” programs and the simple pass-through of interest from government securities. The outcome will signal whether U.S. lawmakers can craft nuanced regulation that mitigates real risk while enabling positive innovation. A failure to do so may not cause an immediate collapse of the dollar’s status, but it will incrementally erode its utility at the digital frontier.

Looking beyond Washington, the global experiment continues. China will proceed with its yield-bearing Digital Yuan, other nations will launch their own CBDCs with various features, and private stablecoins will continue evolving in jurisdictions with clearer or more permissive rules. The networks that attract the most developers, users, and capital will become the de facto standards. The question for the U.S. is whether it wants the dollar, in its digital form, to be a leading participant in that future or a legacy artifact preserved behind protective walls. The debate over a few lines in the CLARITY Act is, in essence, a debate about the answer to that monumental question.

FAQ

What is the CLARITY Act and how does it affect stablecoins?

The CLARITY Act is a proposed U.S. law aimed at creating a comprehensive regulatory framework for digital assets and crypto markets. A key and controversial provision within the current draft expands an existing ban, preventing cryptocurrency exchanges and service providers from offering any interest or yield payments to customers who hold stablecoins. This directly impacts the attractiveness and functionality of dollar-pegged stablecoins by removing a key financial incentive for holders.

Why **** do** Anthony Scaramucci and others say this helps China’s Digital Yuan?**

Critics like Anthony Scaramucci argue that by banning yield on U.S. stablecoins, American regulators are making them less competitive. Meanwhile, China’s central bank is actively exploring adding interest-bearing features to its state-backed Digital Yuan (e-CNY). In the global market, especially for emerging economies choosing digital payment “rails,” a yield-bearing currency is more attractive than a zero-yield one. This asymmetry, they warn, could lead to greater international adoption of the Digital Yuan at the expense of the digital dollar’s reach.

What is the traditional banking industry’s concern with **** stablecoin** yield?**

Bank leaders, exemplified by Bank of America’s CEO, fear that if stablecoins can offer attractive yields, they will draw massive amounts of money out of traditional bank deposit accounts. Brian Moynihan has cited a potential 6 trillion dollars in deposit outflows. Since banks rely on deposits to fund loans, such a shift could constrain their lending capacity and profitability. The yield ban is seen as a protective measure to maintain the stability and function of the existing banking system.

How is yield typically generated on stablecoins if not through risky lending?

For major, fully-reserved stablecoins like USDC, yield is not generated by risky loans. Instead, the issuers back each token with assets like short-term U.S. Treasury bills held in secure reserves. The yield comes from the interest earned on these ultra-safe government bonds. Offering a yield to holders means passing a portion of this Treasury interest back to them, a model similar to a money market fund. The ban prevents this efficient pass-through of existing, low-risk yield.

Could the stablecoin yield ban be changed or reversed?

Yes, the CLARITY Act is still in the legislative process and is subject to debate, amendment, and lobbying. The crypto industry and its allies are actively arguing for a more nuanced approach that would allow yield for transparent, fully-reserved stablecoins while still prohibiting risky activities. The final shape of the law will depend on the political balance between protecting the traditional banking sector and fostering innovation in the digital dollar ecosystem.