China will allow banks to pay interest on digital yuan wallets from 2026, expanding CBDC functions, boosting adoption, and reinforcing central bank control.
China’s central bank has unveiled a major update to its digital yuan framework starting January 1, 2026. The change enables commercial banks to pay interest on the balances of e-CNY wallets. Officials say this step moves the digital yuan away from its original purpose as a cash substitute.
PBOC Moves Digital Yuan Toward Deposit Currency Model
The People’s Bank of China affirmed the framework by a newly published action plan. Deputy Governor Lu Lei explained the update in an article published by the China Financial News.
JUST IN – China’s central bank will allow banks to pay interests on clients’ digital yuan holdings in a new framework set to take effect on Jan. 1, 2026.
With the new policy in place, the e-CNY will transition from functioning as digital cash to operating as “digital deposit… pic.twitter.com/eC3JM8BXJ4
— Timmy Shen (@timmyhmshen) December 29, 2025
Under the new rules, banks are allowed to treat digital yuan balances in their asset-liability management. Previously, e-CNY operated mainly in the form of digital cash, or M0. Therefore, the change is a transition to digital deposit money.
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Interest will apply only to verified and real-name digital wallets held at banks. Rates will follow current demand deposit benchmarks. As a result, the holding of e-CNY becomes financially similar to the traditional bank deposit.
Importantly, national deposit insurance protection will be provided to digital yuan balances. This ensures the same safeguards of normal bank accounts. As a result, user confidence can be increased to a great extent.
The e-CNY balances will be managed by commercial banks themselves on their balance sheet. In addition, these balances will be included in the calculation of reserve requirements. Meanwhile, non-bank payment firms must have a 100 percent reserve ratio.
Lu focused on a hybrid system design instead of decentralization. The central bank establishes standards and functions basic infrastructures. Meanwhile, banks handle wallets, compliance and customer services.
Non-bank payment platforms distribute digital yuan exchanged from bank deposits. However, they continue to be well backed and closely supervised. Therefore, regulatory control is still at the center.
The framework is based on lessons learned from almost a decade of pilots. China started testing the digital yuan in 2016. Since then, the functionality and scale grew gradually.
Interest-Bearing e-CNY Targets Adoption and Global Expansion
The PBOC’s goal is to increase the adoption of e-CNY by offering financial incentives. Digital yuan usage is behind Alipay and Wechat Pay. Therefore, interest payments cover an important adoption barrier.
Officials also noted international ambitions for the digital yuan. New generation structure of cross-border settlement. Partners include Singapore, Thailand and Saudi Arabia.
China is seeking global digital finance infrastructure leadership. An interest-bearing CBDC is one way that the e-CNY differentiates itself internationally. Consequently, the technological and regulatory influence of China is strengthened.
Unlike cryptocurrencies, the digital yuan does not use open distributed ledgers. Instead, it focuses on scalability and operational efficiency. Thus, authorities still have complete monetary control.
Transaction data emphasizes the scale of the system. By November of 2025, the e-CNY processed some 3.48 billion transactions. Total value amounted to 16.7 trillion yuan or roughly 2.38 trillion dollars.
Despite scale, the daily use is uneven in different regions. Policymakers consider interest payments to be a corrective measure. Therefore, wallet retention may improve.
Banks benefit from increased integration of digital yuan liquidity. Managing e-CNY in concert with deposits helps to improve treasury efficiency. Because of this, systemic stability may be bolstered.
Overall, the framework encourages central control as well as use. Interest-bearing wallets combine innovation and stability. Ultimately, China promotes its long-term strategy of a digital currency.