China’s Digital Yuan Gets a Boost as PBOC Unveils New Framework
The digital yuan, China’s central bank digital currency (CBDC), is on the cusp of a major evolution. After years of testing and refinement, the People’s Bank of China (PBOC) has announced a significant overhaul of its CBDC framework, introducing a new “digital deposit currency” system that promises to enhance the functionality and adoption of e-CNY.
With its potential to reshape the future of digital finance, this latest development is being closely watched by industry experts and policymakers around the world. This bold initiative is set to drive adoption and cement China’s position as a pioneer in the CBDC space, with potential implications for the future of global trade and finance.
China Unveils Digital Yuan’s Next Chapter
China’s central bank, the People’s Bank of China, has announced a major revamp of its digital yuan framework, set to introduce interest-bearing digital yuan holdings for commercial banks. POBC Deputy Governor Lu Lei revealed via an official statement, that China’s digital yuan, also called e-CNY, will shift from functioning as digital cash to “digital deposit currency” under a new framework effective January 1, 2026.
Significantly, this shift allows commercial banks to pay interest on digital yuan holdings, similar to traditional bank deposits. The move aims to boost adoption and integrate the CBDC into China’s financial system more seamlessly.
As of November 2025, China’s digital yuan has achieved a significant milestone, with 3.48 billion transactions processed. In total, it is valued at 16.7 trillion yuan, equivalent to $2.38 trillion, according to Lu.
It is noteworthy that e-CNY is getting ready for this remarkable upgrade following a decade of pilot programs and experimentation. Regarded as one of the most advanced CBDCs globally, the e-CNY has faced challenges in gaining widespread adoption despite government support since its pilot launch in 2019.
However, with the new system, banks will now pay interest on verified digital yuan wallets, aligning with existing deposit pricing agreements. Additionally, digital yuan balances will enjoy the same protection as traditional deposits under China’s deposit insurance system, potentially driving greater adoption and usage.
How Interest-Bearing Wallets Revolutionize China’s e-CNY?
Starting January 1, 2026, China’s digital yuan is set to undergo significant changes, allowing users to earn interest on their holdings and potentially driving adoption. The updated framework categorizes e-CNY wallet balances by liquidity levels, requiring bank-type institutions to hold reserves against them, similar to traditional deposits.
This move aims to ensure stability while maintaining compatibility with distributed ledger technologies like blockchain. The system will also preserve its core functions like a unit of account, store of value, and medium for cross-border payments.
Moreover, the interest-bearing model is designed to address poor institutional adoption rates by expanding practical applications, enabling seamless integration with key financial functions such as payroll, loans, and investments, ultimately driving greater usage and adoption of the digital yuan.
The new framework aims to establish the digital yuan as a standard in daily transactions, reducing friction and eliminating conversion fees between e-CNY and traditional deposits. For individuals and businesses, this transition could bring additional benefits, including higher interest earnings and reduced reserve requirements, potentially leading to more favourable rates and features.
