China To Start Paying Interest On Digital Yuan From January 1: Report

Last Updated:December 29, 2025, 13:37 IST

Commercial banks operating digital yuan wallets will now offer interest to users based on the amount of virtual currency they hold, says a report.

China is set to start paying interest on holdings of its official digital currency, the e-CNY, from January 1, a step aimed at nudging broader public adoption after nearly a decade of trials and development.

According to an article by Lu Lei, deputy governor of the People’s Bank of China (PBOC), published in Financial News, commercial banks operating digital yuan wallets will now offer interest to users based on the amount of virtual currency they hold. The move effectively puts the digital yuan on par with conventional bank deposits by granting it the same legal status, a change also highlighted in a report by Singapore’s Business Times.

China has been among the earliest movers globally in developing a central bank digital currency, having launched the digital yuan project back in 2014. The latest policy push comes at a time when Chinese households have been saving more, while loan growth at commercial banks has fallen to record lows. This combination has left banks awash with deposits but with fewer lending opportunities.

Even so, the e-CNY has yet to gain mass acceptance. Although pilot programmes now cover more than half of mainland China’s provinces, usage remains limited. One key challenge is competition from entrenched private payment platforms such as WeChat Pay and Alipay, which continue to dominate everyday digital transactions.

China’s ambitions beyond its borders have also faced hurdles. The multilateral mBridge initiative, designed to enable cross-border digital payments, lost momentum after the Bank for International Settlements withdrew last year, citing concerns over potential misuse and the risk of weakening the US dollar’s role in the global financial system.

Meanwhile, interest rates on demand deposits at China’s largest banks have been cut repeatedly and now stand at just 0.05 per cent, underscoring the pressure banks face in managing large pools of low-yielding deposits.

To accelerate progress, the PBOC has stepped up efforts to build out the digital yuan ecosystem. Recent measures include setting up a digital yuan operations centre in Shanghai to support cross-border payment platforms, blockchain applications, and broader digital asset development. In October, the Communist Party also called for the “steady development” of the e-CNY in the next five-year plan.

Unlike the United States and several other economies that are increasingly embracing privately issued stablecoins backed by cash-like assets, China has remained firmly focused on its state-backed digital currency. Although there were signs of interest in stablecoins earlier this year, officials continue to flag concerns around speculation, fraud, and broader financial stability risks.

Meanwhile, Chinese state media have warned against placing one-way wagers on the yuan, indicating that officials are becoming increasingly uneasy with the rate of recent currency increases.

According to analysts cited by Shanghai Securities News and China Securities Journal on Monday, the yuan’s current trend is unsustainable and market players shouldn’t bet it will continue. In offshore trading this week, the yuan surpassed 7 per dollar for the first time since September 2024 and has gained more than 4% this year.

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