Coinpaper 2025-12-29 09:34:44

China's Digital Yuan Is About to Start Earning Interest—But There's a Catch

China's central bank will implement a major overhaul of its digital currency starting January 1, 2025. The People's Bank of China (PBOC) announced that commercial banks will begin paying interest on digital yuan holdings. This marks a fundamental shift in how the world's second-largest economy approaches its central bank digital currency. Lu Lei, Deputy Governor of the PBOC, outlined the transformation in an article published by the state-owned Financial News. The digital yuan, known as e-CNY, will transition from functioning as digital cash to operating as digital deposit money. This change aims to boost adoption rates among Chinese citizens and businesses. Legal Tender Status Sets Digital Yuan Apart The digital yuan carries legal tender status in China. This designation creates a critical difference between e-CNY and popular private payment platforms. Alipay and WeChat Pay dominate China's mobile payment landscape, but they lack official legal tender recognition. Businesses must accept digital yuan payments due to its status as a legal tender. Private payment apps remain optional for merchants. This mandatory acceptance requirement gives the PBOC's digital currency a competitive edge in the market. The digital yuan functions similarly to existing mobile wallet applications. Users can make purchases, transfer funds, and manage accounts through their smartphones. However, the legal framework supporting e-CNY provides government backing that private platforms cannot match. Cross-Border Expansion Through the mBridge Platform China completed its first cross-border digital yuan transaction in Laos. This milestone demonstrates the currency's potential for international trade and payments. The PBOC continues developing infrastructure to support cross-border usage. The mBridge platform received significant upgrades to facilitate these international transactions. Multiple central banks participate in this innovative system. The platform enables instant digital payments between participating nations without traditional banking intermediaries.