China's central bank will allow commercial banks to pay interest on e-CNY balances from January 1, 2026, shifting CBDCs from a cash substitute to digital deposits amid the US ban on CBDCs.
The People's Bank of China is implementing a pivotal shift in its digital currency strategy by allowing commercial banks to pay interest on digital yuan wallet balances starting January 1, 2026. This move marks a landmark transformation for China's central bank digital currency, moving beyond its initial Vai as a cash substitute to become a more inclusive financial instrument with characteristics similar to traditional bank deposits.
Lu Lei, Vice Governor of the People's Bank of China, announced the new framework in an article published earlier this week in the China Financial Times, a news outlet affiliated with the PBOC. According to Lei, this framework will allow banks to treat the digital yuan as part of their asset and liability operations. He emphasized that the digital yuan will transition from the era of digital cash to the era of digital deposits, functioning as a measure of monetary value, store of value, and cross-border payment system.
Despite the ban on cryptocurrency and stablecoin trading in mainland China, the PBOC continues to develop a CBDC ecosystem to leverage the efficiency of blockchain-based payment infrastructure through a central bank-issued and controlled digital cash scheme.
This policy contrasts sharply with the direction taken in the United States, where President Donald Trump issued an executive order on January 23 banning the creation, issuance, distribution, or use of CBDCs. The order cited concerns about potential threats to the stability of the financial system, individual privacy, and national sovereignty.
Andy Lian, author and intergovernmental advisor on blockchain, has described this move as a game-changer for the US cryptocurrency industry. In July, Trump signed the GENIUS Act, establishing the first comprehensive US stablecoin framework, with clear rules on underlying assets and anti-money laundering compliance requirements.
Action plan to expand e-CNY and the privacy controversy.
The new framework, titled “Action Plan on Strengthening the Digital Yuan Management Service System and Building Related Financial Infrastructure,” aims to expand the nationwide use of e-CNY. In September, the central bank established the RMB International Operations Center in Shanghai, a blockchain service platform that builds on- chain payment tools and cross- chain transfer capabilities to promote the use of digital yuan in cross-border payments.
While the PBOC argues that the digital yuan could create a higher degree of financial inclusion, many critics have expressed concerns about the potential for the tool to grant the government more financial control. Alex Gladstein, Director of Strategy at the non-profit Human Rights Foundation, suggests that the Chinese government wants more control over payments.
He argued that while central banks Capital exert tight control over the two leading commercial payment corporations, directly controlling and overseeing a digital currency would provide more data and the power to deny people access, according to a statement he made to MIT Technology Review in August 2023.
