The People’s Bank of China (PBOC) will convert the digital yuan (e-CNY) into an interest-bearing deposit instrument starting January 1, 2026, under an Action Plan that reshapes its regulatory and operational treatment. The move reclassifies the e-CNY within China’s monetary aggregates and pairs interest accrual with expanded reserve and insurance rules.
The Action Plan elevates the e-CNY to an M1 deposit currency, moving it beyond a pure transactional medium into the category that includes cash and demand deposits. M1 deposit currency is the component of the money supply composed of cash and immediately spendable deposits.
Non-bank payment providers will be required to hold full (100%) reserves against their e-CNY balances, mirroring existing rules for customer reserve funds and reducing these platforms’ liquidity flexibility. Commercial banks will integrate e-CNY balances into their asset‑liability management under more permissive operational rules, while verified wallet holdings will receive protection under the national deposit insurance scheme up to the statutory limit.
Interest on e-CNY balances will be variable and linked to prevailing demand deposit rates, with commercial banks administering accrual and payout according to current self‑regulatory arrangements for deposits. Under the new framework, e-CNY balances become liabilities of the institutions that manage them, bringing those balances onto banks’ balance sheets and subjecting them to standard liquidity and management practices.
Early benchmark levels may be modest — preliminary signals point to an initial rate in the order of 0.05% — but the mechanism ties the digital currency’s yield to market deposit dynamics rather than fixing a separate central-bank coupon.
The PBOC’s Action Plan for the Digital Yuan
The introduction of interest is designed to narrow the gap between the e-CNY and dominant private payment ecosystems that retain funds via higher-yield products, such as those offered by major platform wallets. By allowing direct interest on verified wallet balances, regulators expect a stronger user value proposition for saving and holding e-CNY.
The reform deepens the e-CNY’s integration into monetary policy tools, granting the PBOC finer control over money supply and liquidity management. On the international front, the upgrade is positioned to support wider cross‑border use: complementary measures include an international operation center in Shanghai and continued participation in multilateral projects like mBridge, which together aim to raise the renminbi’s usability in settlement and reduce reliance on single‑currency corridors.
The January 1, 2026, framework turns the e-CNY from a cash-like instrument into an interest-bearing digital deposit with reserve mandates, deposit insurance coverage and bank-administered rates — changes intended to bolster domestic uptake and monetary control while supporting internationalisation goals.
