China to let banks pay interest on digital yuan to drive adoption
China's central bank announced a major overhaul of its digital yuan framework on Monday, revealing that commercial banks will soon begin paying interest on digital yuan holdings starting, marking a significant shift in the decade-long state project to promote adoption of the country's central bank digital currency (CBDC). Lu Lei, a deputy governor of the People's Bank of China, wrote in an article published by state newspaper Financial News that the digital yuan, also known as the e-CNY, will transition from functioning as digital cash to operating as "digital deposit currency" under a new framework set to take effective on Jan. 1, 2026.The PBOC official said that the overhaul follows a decade of pilot programs and experimentation. The e-CNY is widely regarded as one of the most advanced CBDCs in the world. Although the government has introduced various measures to support its rollout since the official pilot began in 2019, adoption has remained a challenge.With the new system in place, banks are set to pay interests on verified digital yuan wallets in line with existing self-regulatory agreements on deposit pricing, while digital yuan balances will receive the same level of protection as traditional deposits under China's deposit insurance system, according to Lu.The new policy also grants banks greater flexibility to manage digital yuan balances as part of their broader asset-liability operations. For non-bank payment institutions, the PBOC official said digital yuan reserve funds will be treated no differently from existing customer reserve requirements, with a 100% reserve ratio applied.As of the end of November 2025, China processed 3.48 billion digital yuan transactions worth a cumulative 16.7 trillion yuan ($2.38 trillion), according to Lu.Digital yuan pushThe new policy comes as China appears to have accelerated its efforts to promote the e-CNY in recent months. The digital yuan has struggled to gain widespread traction as it faces stiff competition from entrenched mobile payment platforms such as WeChat Pay and Alipay, which dominate the country's cashless transaction landscape.Last week, the PBOC pledged to expand cross-border use of the digital yuan, including a planned pilot with Singapore, while promoting CBDC payments with markets such as Thailand, Hong Kong, the United Arab Emirates and Saudi Arabia, according to a report from the South China Morning Post.In September, the PBOC launched its e-CNY International Operation Center in Shanghai to expand the global influence of the Chinese yuan.While Chinese authorities have openly embraced blockchain technology, it continues to ban cryptocurrency trading and mining on the mainland.Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.© 2025 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.