China is making efforts toward the adoption of its CBDC and has now mandated banks to pay interest rate on the currency.
The People’s Bank of China (PBOC) recently announced a major update in the development of Digital Yuan, its Central Bank Digital Currency (CBDC).
The details for its digital yuan overhaul is contained in a document titled, “Action Plan on Further Strengthening the Construction of Digital RMB Management Service System and Related Financial Infrastructure.”
New Roadmap for Digital Yuan Adoption
On December 29, China’s central bank hinted at a major overhaul of its digital yuan framework.
As a way of tightening its oversight, the PBOC has now mandated commercial banks to pay interest on digital yuan holdings.
This marks a significant development in the decade-long state project to promote adoption of the country’s CBDC.
The payment of interests on verified digital yuan wallets aligns with existing self-regulatory agreements on deposit pricing.
Lu Lei, a deputy governor of the People’s Bank of China, noted that digital yuan balances will be protected as much as traditional deposits are under China’s deposit insurance system.
According to Lei, the digital yuan, or e-CNY, will go from functioning as digital cash to operating as “digital deposit currency.”
The new framework for this transition is billed to take effect from January 1, 2026. It is worth acknowledging that the e-CNY is recognized globally as one of the most advanced CBDCs.
For this digital Yuan, the PBOC is utilizing a two-tiered operational model that gives the central bank the responsibility of making rules and technical standards.
On the other hand, commercial banks will be charged with managing the end-users. Lei confirmed that the said overhaul comes after a decade of pilot programs and experimentation.
China Invests in Digital Yuan Development
The official pilot for the currency kicked off in 2019 and since that time, the government has introduced various measures to support its rollout.
However, adoption has remained a challenge. In 2023, Changchun Mu, director of the Digital Currency Research Institute of the People’s Bank of China, emphasized the importance of wallet providers in enabling CBDC payment options across various retail settings.
About a month after, it was announced that the government launched its first industrial park for digital yuan development in the Luohu district of Shenzhen, China.
The initiatives include payment solutions, smart contracts, hard wallets, and digital yuan promotion.
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