China will allow banks to pay interest on the digital yuan to boost its adoption

Source: PortaldoBitcoin Original Title: China will Allow Banks to Pay Interest on Digital Yuan to Boost Adoption Original Link: China will take a new step in its strategy to expand the use of the digital yuan by allowing commercial banks to start paying interest on balances held in the state digital currency, a significant change in the project design that has been under development for about a decade.

The decision was announced by the People’s Bank of China and represents an attempt to make the e-CNY more attractive to users and financial institutions, amid persistent challenges in large-scale adoption.

According to Lu Lei, Vice Governor of the People’s Bank of China, the digital yuan will cease to function solely as a form of digital money and will take on the role of a “digital deposit currency” within a new framework that will come into effect on January 1, 2026.

The official stated that the reform is the result of years of testing and pilot programs, officially launched in 2019, and reflects the maturity achieved by the project after a long experimental phase.

With the new rules, banks will start remunerating verified digital yuan wallets, following existing self-regulation agreements for the pricing of traditional deposits. Additionally, balances held in e-CNY will be protected by the same level of coverage offered by China’s deposit insurance system, equating the digital currency with conventional bank deposits.

The change also provides greater flexibility for financial institutions to manage these resources within their asset and liability operations, integrating the digital yuan more directly into the banking system.

For non-bank payment institutions, the People’s Bank of China announced that reserve funds in digital yuan will be treated the same as customer reserves currently required, with a reserve rate of 100%. The measure aims to maintain prudent system oversight while expanding the use of e-CNY in the economy.

Growth of the Digital Yuan

Data released by authorities show the scale already achieved by the project, although everyday adoption remains a challenge. By the end of November 2025, China had processed 3.48 billion transactions in digital yuan, totaling 16.7 trillion yuan, equivalent to about US$ 2.38 trillion. Despite this significant volume, the e-CNY still faces strong competition from established private platforms like WeChat Pay and Alipay, which dominate digital payments in the country.

The decision to allow interest payments comes at a time of intensified Chinese efforts to promote the digital yuan, including beyond its borders. Recently, the central bank signaled plans to expand cross-border use of e-CNY, with pilot projects planned in partnership with Singapore and initiatives targeting markets such as Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia. In September, China also launched the e-CNY International Operations Center in Shanghai, aiming to increase the global influence of the Chinese currency.

Despite advances in the state digital currency and the open adoption of technologies like blockchain, China maintains a restrictive stance toward the private cryptocurrency market. Trading and mining of crypto assets remain prohibited in mainland China, reinforcing the country’s strategy to rely on a state-controlled digital infrastructure as an alternative to decentralized cryptocurrencies.