BEIJING— In a move that could redefine the global race for central bank digital currencies (CBDCs), the People’s Bank of China (PBOC) announced on Monday, December 29, 2025, that it will begin paying interest on digital yuan (e-CNY) balances. Starting January 1, 2026, the world’s second-largest economy will transition its digital currency from a simple "digital cash" equivalent to a formal "digital deposit currency."
The announcement, detailed by PBOC Deputy Governor Lu Lei in the Financial News, marks a strategic pivot after a decade of pilot programs. By allowing commercial banks to remunerate verified e-CNY wallets, China is directly challenging the dominance of private payment titans Alipay (Ant Group) and WeChat Pay (Tencent), which currently handle over 90% of the nation’s mobile transactions.
From Digital Cash to Interest-Bearing Assets Since its inception in 2014, the e-CNY has functioned as M0—physical cash in digital form—and therefore did not earn interest. The new "Action Plan" reclassifies it as a liability of commercial banks, effectively merging it with the M1 money supply. Key pillars of this 2026 overhaul include:
- Remuneration: Banks will pay interest on e-CNY balances in accordance with existing deposit rate regulations (currently around 0.05% for demand deposits).
- Full Protection: Digital yuan holdings will now be covered by the national deposit insurance system, providing the same security as traditional bank accounts.
- Monetary Policy Tool: By integrating e-CNY into the reserve requirement framework, the PBOC gains finer control over liquidity and interest rate transmission.
A Strike Against Stablecoins and Big Tech The timing of this "Digital RMB 2.0" is not accidental. Despite processing over 16.7 trillion yuan ($2.37 trillion) in transactions by late 2025, the digital yuan has struggled to achieve the daily "stickiness" of private apps. By adding an interest yield—even a modest one—the PBOC aims to incentivize users to keep larger balances in official wallets rather than shifting them to private fintech platforms or foreign stablecoins.
For non-bank payment institutions, the rules are tightening: they must now maintain a 100% reserve ratio against the digital yuan they manage. This ensures that while private firms can still facilitate payments, the underlying value remains firmly within the central bank's regulated orbit. As the e-CNY International Operation Center in Shanghai expands cross-border pilots, this interest-bearing model may serve as a blueprint for other nations seeking to maintain monetary sovereignty in a digital age.
Frequently Asked Questions (FAQs)
How much interest will I earn on my digital yuan? Interest rates for e-CNY will align with prevailing demand deposit rates at commercial banks. While currently low (approximately 0.05% to 0.10%), the ability to earn any yield makes the official wallet more competitive with non-interest-bearing digital cash.
Is my money safer in e-CNY than in Alipay or WeChat Pay? Starting January 2026, e-CNY balances held in commercial bank wallets will be protected by China's deposit insurance, covering up to 500,000 yuan per person. Private apps often hold funds in "reserve accounts," which are safe but do not offer the same direct legal status as a central bank-backed deposit.
Why is China changing the digital yuan now? After 10 years of trials, adoption has plateaued because users saw no financial reason to switch from Alipay. By turning the e-CNY into a "digital deposit," the PBOC makes it a store of value rather than just a payment tool, aiming to increase the "stickiness" of the currency.
Will this impact global stablecoins like USDT or USDC? Yes. By offering a regulated, interest-bearing, and state-backed digital currency, China aims to reduce the domestic appeal of "shadow" currencies and stablecoins that operate outside of PBOC supervision, especially for cross-border trade in Free Trade Zones.
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