Introduction
A high-stakes regulatory clash over cryptocurrency rewards is unfolding in the U.S. Senate, with Coinbase’s top policy executive warning that proposed restrictions could undermine the dollar’s global standing. As lawmakers debate the CLARITY Act, a fierce battle centers on protecting the GENIUS Act’s stablecoin provisions, which banks are lobbying to curtail. Critics argue this opposition is less about financial stability and more about shielding nearly $400 billion in annual revenue from new competition, a move that could inadvertently accelerate China’s digital yuan ambitions.
Key Points
- Banks earn approximately $176 billion annually from Fed reserves and $187 billion from card swipe fees—revenue streams threatened by competitive stablecoin rewards.
- China has begun paying interest on its digital yuan, strategically exploiting U.S. regulatory uncertainty to challenge dollar dominance in digital payments.
- The American Bankers Association is lobbying the Senate to restrict non-bank entities like Coinbase and Kraken from offering rewards, a move critics call a 'hidden tax' on consumers.
The $360 Billion Stakes in the Stablecoin Fight
At the heart of the debate is the GENIUS Act’s provision allowing stablecoin rewards—essentially interest payments to consumers holding digital dollars. Faryar Shirzad, Chief Policy Officer at Coinbase, argues that reopening this debate “creates uncertainty and risks the future of the US Dollar as commerce moves onchain.” He presents a stark financial picture to explain bank opposition: U.S. banks generate approximately $176 billion annually from the $3 trillion they hold at the Federal Reserve, plus another $187 billion from card swipe fees. This totals over $360 billion yearly from payments and deposits, averaging nearly $1,440 per U.S. household.
Shirzad contends that stablecoin rewards challenge these margins not by impeding lending, but by introducing real competition in payment systems. He alleges the Federal Reserve’s current framework incentivizes banks to maintain reserves rather than deploy them, creating substantial unused lending capacity. The opposition from banks, therefore, stems from a desire to protect lucrative revenue streams threatened by competition, not from prudential concerns about financial stability. “Rewards benefit consumers without adversely affecting community banks,” Shirzad emphasized, framing the banks’ motivation as transparently financial.
The American Bankers Association's Regulatory Pushback
The American Bankers Association (ABA) is actively lobbying the Senate to close what it calls a “third-party loophole” in the GENIUS Act. This change would restrict non-bank entities like Coinbase (COIN) and Kraken from offering rewards to consumers. Attorney John E. Deaton, representing XRP holders in the SEC’s lawsuit against Ripple Labs, sharply criticized this effort. He argued that banning American firms from providing yield to everyday citizens doesn’t protect banks as claimed, but rather risks forcing global reliance on China’s currency over the U.S. dollar.
Deaton extended his criticism to banking officials and institutions, asserting that the Banking Policy Institute, led by figures like JPMorgan Chase’s Jamie Dimon, crafted an anti-crypto bill last year that undermines average Americans’ interests. He contends that if the Senate capitulates to the bank lobby, it effectively imposes a “hidden tax” on retail investors and customers nationwide to safeguard Wall Street profits. The core issue, according to Deaton, is that major banks feel threatened by digital dollars because they cannot “rent” that money back to consumers if individuals earn yield themselves through stablecoins.
China's Strategic Move and the Global Currency Race
Both Shirzad and Deaton frame the domestic regulatory debate within a concerning international context: China’s advancement of its digital yuan. Shirzad expressed alarm that during Senate discussions, China recognized the opportunity presented by U.S. bank lobbying. The country recently announced interest payments to users of its Digital Yuan, a direct move to enhance its currency’s attractiveness and challenge dollar supremacy in digital commerce.
Shirzad warned that banning rewards in the Senate would inadvertently aid China’s efforts to undermine the dollar’s dominance. Deaton emphasized the urgency, noting China has officially begun offering interest on the digital yuan. The parallel is clear: while U.S. regulators debate restricting consumer yield options, a geopolitical rival is actively deploying the very feature being contested. This creates a strategic vulnerability, where U.S. regulatory uncertainty could cede ground in the race for digital currency adoption, potentially accelerating a shift away from dollar-denominated digital payments.
The debate over the CLARITY Act and GENIUS Act provisions thus transcends typical financial regulation. It represents a convergence of domestic banking interests, consumer finance innovation, and global monetary competition. The outcome will signal whether the U.S. intends to foster competitive digital dollar ecosystems or protect traditional banking revenue models at a potential cost to both consumers and the dollar’s long-term position in an increasingly digital global economy.
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