China's digital currency changes strategy: from cash to interest on deposits

Starting from January 2026, China’s digital yuan has undergone a structural transformation, changing from a virtual currency with digital cash features to a true interest-bearing deposit instrument. According to Lu Lei, Vice Governor of the People’s Bank of China, this change marks a turning point after a decade of controlled experimentation in the central bank digital currency sector. The decision represents a new approach to encourage adoption of the Chinese digital currency among citizens and businesses.

From Virtual Currency to Interest-Bearing Deposit Model

The new regulatory framework completely redefines e-CNY as a financial instrument based on deposit collection within the national banking system, supervised by the central bank. In this innovative model, commercial banks will be able to pay interest on verified digital yuan wallets, following existing self-regulation agreements for traditional deposits.

Digital yuan balances will now have characteristics of bank liabilities rather than cash equivalents. This reclassification has significant implications: e-CNY deposits will receive the same deposit insurance protections provided by China’s deposit guarantee system, fully equating the crypto instrument with conventional deposits. For non-bank payment institutions, reserve funds will continue to maintain a 100% coverage ratio.

Implications for Adoption and Market Competition

The shift to a interest-bearing model is a strategic response to the adoption challenges faced during the initial years of experimentation. Despite significant distribution efforts through airdrops and pilot projects, the use of China’s digital currency has lagged behind established platforms like WeChat Pay and Alipay, which continue to dominate China’s cashless payment market.

Introducing interest aims to modify consumer incentives. By offering competitive interest rates on e-CNY balances, authorities hope to encourage not only initial adoption but also the retention of funds in digital currency. The key question remains: can deposit-type incentives truly influence user behavior in a market already shaped by well-established fintech giants?

Project Timeline and Current Status

China’s digital currency journey began in 2014 with the launch of the People’s Bank of China’s Digital Currency Electronic Payment (DCEP) project, marking the start of national research into central bank digital currencies. After years of testing in various Chinese cities, the government officially introduced e-CNY in April 2022, accompanied by incentive measures and regional pilot programs.

Current figures reflect gradual growth: as of the latest available data, digital yuan transactions have reached approximately 3.48 billion operations with a total volume of 16.7 trillion yuan (about $2.38 trillion). While these numbers position the program among the world’s leading CBDCs by transaction volume, market penetration remains far from its maximum potential.

International Expansion Strategies and Future Outlook

Alongside domestic reforms, China has significantly accelerated efforts to expand cross-border use of the digital yuan. The central bank has announced plans to actively promote international payments in e-CNY through new pilot programs. Key partners include Singapore, with which a direct pilot collaboration is planned, as well as Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia.

A strategic element is the creation of an international operational hub for the digital yuan in Shanghai, serving as a center to coordinate cross-border operations. This geographic choice strengthens China’s digital currency position within the Asian financial architecture. China continues to prioritize the development of its official central bank digital currency over supporting stablecoins issued by private entities, citing concerns over financial instability and fraud risks as justification for this strategic stance.

The new model will fully come into effect during this year, as China accelerates its digital currency program both within domestic financial systems and in the international payments arena.