CLARITY Act stablecoin yield ban clause… “The dollar could be eclipsed by the digital yuan”

Criticism has emerged that a provision in the CLARITY Act—a U.S. bill to establish a market structure for virtual assets (cryptocurrencies)—that bans stablecoin yield could undermine the dollar’s international competitiveness.

According to Cointelegraph on the 19th (local time), Anthony Scaramucci, founder of SkyBridge Capital, said regarding the CLARITY Act, “Banning yield-bearing stablecoins puts the U.S. dollar at a disadvantage in competition against China’s digital yuan.” He added, “Banks don’t want competition from stablecoin issuers, so they’re blocking yield, but China is offering it. Which payment infrastructure do you think emerging markets will choose?”

The People’s Bank of China has allowed commercial banks to pay interest on digital yuan deposits since January this year. As a result, the digital yuan is increasingly seen as effectively beginning to function as a yield-bearing central bank digital currency (CBDC). By contrast, the CLARITY Act is designed to limit structures in which U.S. stablecoin issuers and platforms provide yield to users.

Brian Armstrong, CEO of Coinbase, also warned that the provision could weaken the dollar’s competitiveness. “Stablecoin rewards don’t change how bank lending works, but they have a major impact on the appeal of U.S. stablecoins in the global FX market,” he said, adding, “We’re missing the forest for the trees.”

Within the virtual asset industry, there is also criticism that the stablecoin yield ban is a measure to protect the banking sector. Industry participants say the provision was introduced to block competition with existing bank deposits and could ultimately stifle innovation.

Meanwhile, traditional finance is concerned about the possibility of large-scale outflows. Brian Moynihan, CEO of Bank of America (BoA), recently warned in an earnings call that “if stablecoins proliferate, up to $6 trillion in bank deposits could flow out,” adding that “this could significantly weaken banks’ lending capacity.”