KEY FACTS: China's People's Bank of China (PBOC) has announced a major upgrade to its digital yuan (e-CNY), allowing commercial banks to pay interest on balances in verified wallets starting January 1, 2026, effectively transitioning the CBDC from a mere digital cash equivalent to a "digital deposit currency" with value storage functions, full deposit insurance coverage, and integration into banks' asset-liability management. This framework, outlined in the PBOC's new Action Plan and highlighted by Deputy Governor Lu Lei, aims to boost e-CNY adoption amid competition from private platforms like Alipay and WeChat Pay, despite processing 3.48 billion transactions worth 16.7 trillion yuan ($2.38 trillion) by November 2025, while expanding cross-border pilots and leveraging blockchain infrastructure like the recently established RMB International Operations Center in Shanghai.

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Source: Yuan

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China to Introduce Interest-Bearing Digital Yuan Wallets Starting January 2026

China's People's Bank of China (PBOC) has announced a groundbreaking overhaul of its digital yuan, known as the e-CNY. Beginning January 1, 2026, commercial banks will be permitted to pay interest on balances held in verified digital yuan wallets, effectively transforming the e-CNY from a simple digital cash equivalent into a full-fledged "digital deposit currency."

This policy shift, detailed in the PBOC's newly released "Action Plan on Further Strengthening the Digital RMB Management Service System and Related Financial Infrastructure Construction," marks a pivotal evolution in China's decade-long experimentation with its CBDC. Deputy Governor Lu Lei, in an article published in the PBOC-affiliated China Financial News and republished by Sina Finance, described the change as a transition from the "digital cash era" to the "digital deposit currency era." He emphasized that the e-CNY will now fully function as a medium for value storage, in addition to its existing roles as a unit of account and means of payment, including for cross-border transactions.

The introduction of interest payments is seen as a strategic move to boost adoption of the e-CNY, which has faced challenges in gaining widespread traction despite being one of the most advanced CBDCs in the world. Since its pilot launch in 2019, the digital yuan has processed billions of transactions, reaching 3.48 billion by November 2025, with a total value of approximately 16.7 trillion yuan ($2.38 trillion), but it continues to compete fiercely with dominant private payment platforms like Alipay and WeChat Pay, which together handle the vast majority of China's cashless transactions.

Under the new framework, interest will be paid on verified, real-name digital wallets managed by commercial banks, in line with existing self-regulatory agreements for traditional deposit rates. These balances will also qualify for full deposit insurance coverage under China's national system, providing the same protections as conventional bank deposits. This reclassification integrates the e-CNY into banks' asset-liability management operations, giving financial institutions greater flexibility while maintaining strict oversight from the central bank.

Non-bank payment institutions, on the other hand, will be required to hold 100% reserves in digital yuan for customer funds, ensuring stability and preventing fractional reserve practices in the CBDC ecosystem. Analysts suggest this dual approach, empowering banks while constraining third-party providers, could incentivize users to shift funds toward e-CNY wallets, especially in an environment of persistently low interest rates on traditional savings accounts.

The PBOC's ambitions extend beyond domestic borders. The action plan includes plans for expanded cross-border pilots with partners such as Singapore, Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia. In September 2025, the central bank established the RMB International Operations Center in Shanghai, a blockchain-based platform aimed at developing on-chain settlement tools and cross-chain capabilities to facilitate international use of the digital yuan.

Proponents of the e-CNY argue that these enhancements will promote greater financial inclusion, particularly for China's nearly one billion unbanked or underbanked individuals, by offering secure, interest-earning digital options accessible via mobile apps or even offline hardware wallets. The PBOC has long positioned the digital yuan as a tool for efficient, low-cost payments while leveraging blockchain technology under centralized control.

However, the move has reignited debates about privacy and government oversight. Critics, including Alex Gladstein, chief strategy officer at the Human Rights Foundation, have expressed concerns that an interest-bearing CBDC could grant the central bank even greater control over financial flows. In a 2023 interview with MIT Technology Review, Gladstein noted that while China already exerts significant influence over private payment giants, a fully integrated digital yuan would provide unparalleled data access and the ability to restrict individual accounts.

This development in China stands in stark contrast to policy directions in other major economies. In the United States, for instance, President Donald Trump signed an executive order in early 2025 prohibiting the creation or use of a federal CBDC, citing risks to privacy, financial stability, and sovereignty. Instead, the U.S. has embraced stablecoin innovation through frameworks like the GENIUS Act, which establishes clear rules for collateralization and anti-money laundering compliance.

Meanwhile, China's approach underscores its determination to maintain strict prohibitions on cryptocurrencies and decentralized stablecoins within its borders, even as it advances state-controlled digital money. Recent crackdowns on Bitcoin mining and real-world asset tokenization activities highlight this bifurcated strategy: embracing controlled innovation while suppressing unregulated alternatives.

The PBOC has stated that the new framework builds on nearly a decade of pilots and research, reflecting a deliberate path toward integrating the digital yuan into the core of China's monetary system. With these changes on the horizon, the e-CNY appears poised to evolve from an experimental payment tool into a cornerstone of everyday finance for hundreds of millions of Chinese citizens.

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Information Sources:

• Reuters
• Trading View
• Cointelegraph

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