China is transforming its digital yuan from a simple means of payment to an interest-bearing "deposit currency." This is interpreted as a signal that it intends to elevate central bank digital currencies (CBDCs) to a core monetary infrastructure within the financial system.
The People's Bank of China (PBOC) announced on the 29th (local time) that it has established a new operational framework that will allow commercial banks to pay interest on their digital yuan (e-CNY) holdings. The system will take effect on January 1st of next year.
Lu Lei, Vice Governor of the People's Bank of China, explained in a contribution to state-run media that the digital yuan would move beyond the traditional concept of digital cash and become a "digital deposit currency." The digital yuan would be issued and circulated under the technical support and supervision of the central bank, operating as an account-based currency with the characteristics of commercial bank liabilities. It would also be compatible with distributed ledger technology, function as a store of value, and perform cross-border settlement functions.
The core of the new framework is interest payments. Commercial banks will be able to accrue interest on certified digital yuan wallet balances, in accordance with existing self-regulation on deposit interest rates. Digital yuan balances will be covered by the deposit insurance system, providing the same protection as traditional bank deposits. The People's Bank of China believes this will allow commercial banks to more flexibly utilize digital yuan balances for asset and liability management. Digital yuan reserves held by non-bank payment institutions will be subject to a 100% reserve ratio, the same as existing customer reserves.
China began researching the digital yuan in 2014 and officially launched it in 2022. However, its adoption has been criticized as limited due to the market dominance of private payment platforms like WeChat Pay and Alipay. This system overhaul is seen as a strategy to increase usage by redefining the digital yuan from a simple payment aid to a "currency that earns interest when held."
Actual usage indicators are growing rapidly. According to Vice Governor Lu, by the end of November 2025, the number of digital yuan transactions will reach 3.48 billion, with a cumulative transaction volume of 16.7 trillion yuan. The People's Bank of China is also expanding cross-border payment pilot projects, focusing on Singapore and other countries, to enhance the international use of the digital yuan.
The market is evaluating this measure as "CBDCs have moved beyond replacing cash and are now competing with deposits." Attention is focused on the implications of China's experiment, which combines interest and deposit protection with digital currency, for the global monetary order and the design of CBDCs in various countries.
