China to Pay Interest on Digital Yuan to Boost Adoption

• China will allow banks to pay interest on digital yuan holdings starting Jan. 1, 2026.
• The e-CNY will shift from digital cash to a deposit-style CBDC with insurance protection.
• The policy aims to boost adoption amid competition from dominant mobile payment platforms.

China’s central bank is planning a significant transition in its digital currency plans, as the central bank is now planning to allow interest to be paid on commercial bank holdings of the digital yuan. This is part of efforts to promote the adoption rate of the central bank digital currency.

As announced on Monday, the new policy will come into force on Jan. 1, 2026, and it marks a paradigm shift in the structure by which the digital yuan, commonly referred to as the “e-CNY,” operates in the financial systems of China. The new guidelines state that the digital yuan will transform from being a “digital money” instrument to become a “digital deposit currency.”

Lu Lei, deputy governor of the People’s Bank of China, explained the shift in an article published by state-backed Financial News. He said the overhaul follows nearly a decade of pilot programs and experimentation, positioning the e-CNY among the world’s most advanced CBDC initiatives.

Interest Payments and Deposit Protection

Under this new arrangement, commercial banks will be permitted to offer interest on digital yuan wallets that have been authenticated as digital yuan holdings. These interest rates will be benchmarked to existing self-regulatory guidelines on deposit pricing. Also, digital yuan holdings will enjoy the same protection as deposits offered by commercial banks under China’s deposit insurance scheme.

This move is expected to make holding digital yuan more attractive to consumers and businesses, particularly when compared with existing payment options that do not offer interest or deposit-style guarantees.

The policy also gives banks greater flexibility to integrate digital yuan balances into their broader asset and liability management operations. For non-bank payment institutions, digital yuan reserve funds will be treated in line with existing customer reserve requirements, with a 100% reserve ratio applied, Lu said.

Adoption Still a Challenge

Despite its technical maturity, the digital yuan has struggled to achieve mass adoption since official pilots began in 2019. This has been due to strong rivals from mobile payment systems like WeChat Pay and Alipay in China’s cashless transactions environment.

However, the usage data paints a different picture. At the end of November 2025, China had processed 3.48 billion transactions of the digital yuan, with a cumulative value of 16.7 trillion yuan or 2.38 trillion U.S. dollars, said Lu.

Expanding Cross-Border Reach

The new interest-bearing framework comes as China steps up efforts to promote the e-CNY both domestically and internationally. Last week, the PBOC pledged to expand cross-border usage of the digital yuan, including a planned pilot with Singapore, while advancing CBDC payment initiatives with Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia, according to a report by the South China Morning Post.

In September, China also launched the e-CNY International Operation Center in Shanghai, aimed at boosting the global influence of the Chinese yuan.

While the government continues to push the development of blockchain-based financial infrastructure, China continues to ban the trading and mining of cryptocurrencies, with the government making a distinction between the government-issued digital currency and decentralized cryptocurrencies.

As the digital yuan is going to emerge as an interest-bearing deposit instrument, it is expected to give a substantial shape to China’s payment system as well as attract more attention to CBDC within cross-border payments.

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