China plans to start paying interest on digital yuan holdings to help accelerate adoption of its central bank’s digital currency, with interest payments scheduled to begin in January.
Citing an article written by People’s Bank of China (PBOC) Deputy Governor Lu Lei in Financial News, a newspaper affiliated with the central bank, Bloomberg reported that commercial banks that operate digital yuan wallets will pay customers interest based on their E-CNY balances.
This move represents a milestone in the development of the digital yuan, officially called “E-CNY,” which has been in progress since 2014.
The People’s Bank of China’s initiative is expected to reshape both the legal and technical structure underpinning the digital yuan.
Although pilot programs have been implemented in more than half of mainland China’s provinces, the digital yuan has not yet been formally launched nationwide and continues to compete with dominant digital payment services such as “WeChat Pay” and “Alipay.”
On the global stage, China’s efforts to expand the digital yuan have also faced obstacles.
Cross-border payments platform mBridge, a multilateral initiative, faced a setback when the Bank for International Settlements pulled out a year ago due to concerns about possible sanctions evasion and the impact on the dominance of the US dollar.
It is not yet clear whether offering interest will significantly boost E-CNY adoption.
Interest paid on demand deposits at China’s largest banks has fallen to around 0.05% after years of reductions.
At the same time, banks are grappling with high deposit inflows as households save more and loan growth has slowed to record lows.
In recent months, the People’s Bank of China has stepped up its digital currency push.
In October, the Communist Party added the “steady advancement” of the E-CNY to its five-year agenda.
A month earlier, the central bank also launched a digital yuan operations center in Shanghai to work on cross-border payments, blockchain technology and digital asset initiatives.
While countries like the United States have allowed privately issued stablecoins, China continues to prioritize its state-backed E-CNY.
Although there was some initial interest around stablecoins, Chinese regulators have repeatedly expressed concerns about potential risks such as speculation, fraud, and threats to financial stability.
Lu Lei said that as of the end of November, China had handled 3.48 billion digital yuan transactions, totaling 16.7 trillion yuan ($2.38 trillion).
“China to start paying interest on digital yuan holdings from January: report” was created and originally published by Electronic Payments International, a brand owned by GlobalData.