China's e-CNY Transitions to Interest-Bearing Digital Deposits, Reshaping Digital Currency Landscape

e-CNY Enters 'Digital Deposit Money' Era

China's state-backed digital currency, the e-CNY, has undergone a significant redesign, transitioning from a digital cash substitute to a form of digital deposit money. This pivotal shift, spearheaded by the People's Bank of China (PBOC), officially took effect on January 1, 2026, marking a new phase in the evolution of central bank digital currencies (CBDCs) globally.

Under the new framework, commercial banks are now authorized to pay interest on e-CNY wallet balances, aligning with existing deposit rate regulations. This move is expected to make the digital yuan more attractive to users and encourage broader adoption, addressing previous challenges related to its uptake.

Key Policy Changes and Financial Integration

The redesign introduces several fundamental changes to how the e-CNY operates within China's financial system. Deputy Governor of the PBOC, Lu Lei, stated that the e-CNY 'will transition from the era of digital cash to the era of digital deposit money' in an article published by state news outlet Financial News.

• Interest Payments: Commercial banks will pay interest on verified digital yuan wallets, treating these balances as deposit liabilities.
• Deposit Insurance: e-CNY balances will receive the same protection as traditional deposits under China's deposit insurance system.
• Reserve Requirements: The PBOC will incorporate digital yuan operations into its reserve requirement framework, with wallet balances at authorized commercial banks counting towards reserve calculations. Non-bank payment institutions must hold 100% reserves against the digital yuan they manage.
• Balance Sheet Integration: The e-CNY will be integrated into banks' regular asset-liability management practices, allowing banks greater flexibility.

This reclassification moves the e-CNY from being solely classified as M0 (cash in circulation) to M1 (which includes M0 and demand deposits), and potentially M2 (a broader measure of money supply).

Driving Adoption and Expanding Utility

The decision to make the e-CNY interest-bearing is a strategic effort to boost its utility and adoption among both consumers and businesses. Previously, the e-CNY offered little financial incentive compared to traditional bank accounts or dominant mobile payment platforms like WeChat Pay and Alipay.

The upgraded framework aims to strengthen the e-CNY's role as a store of value, a unit of account, and a means for cross-border payments. This is expected to expand its use scenarios, building upon extensive domestic and cross-border trials that have seen the digital yuan adopted across various daily uses, including retail transactions, public services, and international settlements.

Impact and Future Outlook

As of November 2025, China had processed over 3.48 billion cumulative digital yuan transactions, totaling approximately 16.7 trillion yuan ($2.38 trillion). Despite these figures, adoption has remained a challenge, prompting the central bank to introduce these significant changes.

Experts believe this move positions China as a leader in CBDC development, being the first major economy to introduce an interest-bearing digital currency. The redesign is also seen as a way to prevent the e-CNY from siphoning off bank deposits and to maintain liquidity within the banking system. The long-term impact on domestic appeal and international influence will become clearer as the new framework is fully implemented.