On January 1, 2026, the People's Bank of China started paying interest on digital yuan balances in user wallets, making it the world's first central bank digital currency to offer returns to ordinary holders. This upgrade shifts the digital yuan from a simple payment tool to a more attractive option for holding money. Adoption is expected to grow following this change.
The digital yuan, also known as e-CNY or DC/EP, has seen significant use even before this update. By the end of November 2025, it had processed over 3.48 billion transactions totaling 16.7 trillion yuan, equivalent to about $2.38 trillion. This success came from its role as a digital version of cash, or M0, designed for payments including offline capabilities.
However, Western central banks like the European Central Bank, the Federal Reserve, and the Bank for International Settlements have long opposed interest-bearing CBDCs. They argue that such features could drain deposits from commercial banks and risk financial stability, as noted in the ECB's FAQ and the Fed's 2022 discussion paper.
China took a different approach. Starting January 1, 2026, digital yuan balances in wallets are treated as liabilities of commercial banks under People's Bank of China oversight and now earn interest. This moves the currency toward M1 status, functioning like demand deposits rather than just electronic cash.
Guoxin Securities analyst Wang Jian described the change as evolving from "digital cash 1.0" to "deposit currency 2.0," potentially crowding out other electronic currencies. New uses include salaries, subsidies, and public payments, with stronger cross-system settlements.
The implications extend to cross-border trade. Projects like mBridge, involving the BIS and central banks from Thailand, the UAE, and Hong Kong, already use digital yuan heavily. The interest feature could attract businesses by offering returns on idle working capital, addressing pain points in slow, costly systems like SWIFT.
Hong Kong plays a key role as a bridge to global standards through its LEAP framework for digital assets. Fan Wenzhong, head of the international department at the China Banking Regulatory Commission, highlighted a "public-private hybrid" model: "This 'public-private hybrid' framework offers a balanced path: it allows nations to benefit from the reach of global stablecoins while introducing a sovereign-backed 'stabilizer' – effectively insulating them from the systemic risks of a purely private stablecoin market."
This competes with stablecoins like USDC and USDT, which do not pay interest despite their issuers earning from reserves. While stablecoins offer flexibility, the digital yuan's sovereign backing and new yield could appeal in treasury and settlement contexts.
The shift prioritizes monetary control and competitiveness over Western concerns about stability, potentially reshaping global payment rails.
