In a significant shift for central bank digital currencies (CBDCs), China”s People”s Bank of China (PBOC) announced that as of January 1, 2026, wallets holding the digital yuan will start to accrue interest at demand deposit rates. This move diverges from the global consensus that CBDCs should function like cash without the capacity to earn interest.
This new policy applies exclusively to verified wallets categorized as one to three, with interest payments calculated quarterly. However, anonymous category-four wallets will not benefit from this initiative, maintaining a level of privacy for users who choose that option.
Alongside the interest announcement, the PBOC has clarified that the digital yuan will now be safeguarded under the national deposit insurance framework. This provides a crucial safety net for users, aligning the digital currency with traditional bank deposits and addressing worries about potential fund migration away from commercial banks.
By late 2025, the digital yuan ecosystem had already seen impressive adoption, with approximately 230 million wallets created and 16.7 trillion yuan transacted. Despite this growth, the digital yuan faces stiff competition from private payment platforms like Alipay and WeChat Pay, necessitating strategies to enhance user engagement.
Analysts interpret the introduction of interest payments as a strategic move to encourage users to retain funds in their digital yuan wallets rather than quickly transferring them to other services. Wang Jian, a financial analyst at Guoxin Securities, suggested that these changes signify a transition from “digital cash 1.0” to “deposit currency 2.0,” aiming to create an efficient, programmable form of money.
China”s approach contrasts sharply with the stance of other central banks, such as the European Central Bank and the Federal Reserve, both of which have expressed concerns that interest-bearing CBDCs could destabilize traditional banking systems. The Bank for International Settlements and the International Monetary Fund have echoed these sentiments, cautioning against the risks that interest-bearing digital currencies might pose during financial turmoil.
The PBOC”s recent updates are part of a broader “Action Plan for Strengthening Digital Yuan Management and Financial Infrastructure,” indicating a deliberate effort to integrate the digital yuan more deeply into China”s financial landscape while ensuring stability. As over 137 countries explore their own CBDC frameworks, China”s pioneering model may serve as a reference point for future developments in digital currency policy.
