China is fundamentally changing its approach to its digital currency. Starting January 1, 2026, commercial banks will be allowed to pay interest on digital yuan holdings stored in electronic wallets. According to the central bank, this move will transform e-CNY from a simple digital cash substitute into something closer to traditional bank deposits. The shift comes as the United States has taken the opposite approach by banning a state-issued digital currency (CBDC) and backing stablecoins instead.

The digital yuan moves beyond digital cash

The People’s Bank of China (PBOC) has introduced a new framework that allows banks to include e-CNY in their balance sheets. In practical terms, the digital yuan is set to become a full-fledged component of the banking system rather than just a tool for small payments.

“The digital RMB is transitioning from the era of digital cash to the era of digital deposit money,” said Lu Lei, deputy governor of the PBOC, in an article published by China Financial Times. According to him, e-CNY will serve as a unit of account, a store of value, and a tool for cross-border payments.

The ability to earn interest is expected to be crucial for broader adoption among consumers and businesses. Until now, the digital yuan offered little advantage over cash or standard bank accounts.

Blockchain yes cryptocurrencies no

China continues to ban trading in cryptocurrencies and the use of stablecoins. At the same time, it is heavily investing in its own central bank digital currency. The PBOC aims to leverage the technological benefits of Blockchain, including faster and cheaper settlement, while maintaining full control over the monetary system.

The new framework also aims to expand the role of the digital yuan in international payments. In September, the central bank established an RMB International Operations Center in Shanghai, designed as a blockchain-based platform for onchain settlement and crosschain transfers. The goal is to promote e-CNY in cross-border trade and reduce reliance on the US dollar.

The US takes the opposite path

While China strengthens its state-backed digital currency, the United States has moved in the opposite direction. In January, President Donald Trump signed an executive order banning the creation, issuance, and use of a US CBDC, citing concerns over financial stability, privacy, and national sovereignty.

According to Anndy Lian, a blockchain author and advisor, the ban opens the door for private stablecoins. In July, Trump signed the GENIUS Act, the first comprehensive US regulation for stablecoins, setting clear rules for reserves and compliance with anti-money laundering requirements.

Financial inclusion or greater control

Chinese authorities argue that the digital yuan can enhance financial inclusion and modernize payment infrastructure. Critics, however, warn of the risks associated with increased state control.

“The Chinese government wants greater control over payments,” said Alex Gladstein of the Human Rights Foundation. He argues that direct management of a digital currency would give the state unprecedented access to financial data and the power to restrict access to money.

Allowing interest on the digital yuan signals China’s ambition to turn e-CNY into a core instrument of monetary policy and everyday banking. If successful, the model could influence global debates on central bank digital currencies. For China and the broader financial system, 2026 may mark a defining moment in the future of money.

Sources:

https://mp.weixin.qq.com/s/9WbwnKpZbtY-OGu1Vu6YEA

https://www.technologyreview.com/2023/08/03/1077181/whats-next-for-chinas-digital-currency/