PBOC Action Plan Signals Shift in Digital Yuan Policy Framework
Key Takeaways
- The PBOC released a formal action plan to upgrade
digital yuan governance.
- Digital yuan balances may earn interest through
authorized banks.
- Wallet funds will be covered by China’s deposit insurance system.
Digital
Yuan Enters New Policy Phase
China’s central bank has unveiled a
sweeping action plan aimed at redefining how the digital yuan operates within
the country’s financial system, signaling a structural shift in the role of the
currency issued by the PBOC. The plan introduces interest-bearing features,
deposit-style protections and updated operational rules, moving the digital
yuan beyond its original positioning as a cash substitute.
The action plan, released this week,
is scheduled to come into force at the start of 2026. It represents one of the
most consequential updates since China began piloting its central bank digital
currency (CBDC) more than a decade ago. While the digital yuan has already seen
large transaction volumes, officials have acknowledged the need for deeper
institutional integration to support sustained use.
From
Cash Equivalent to Deposit-Like Instrument
A central element of the plan is the
introduction of interest payments on digital yuan balances held through
authorized commercial banks. Under the new framework, banks distributing the
digital yuan will be permitted to pay interest to users, aligning the currency
more closely with traditional deposit products.
This marks a departure from earlier
policy, under which the digital yuan functioned primarily as a
non-interest-bearing, cash-like payment tool. By allowing interest accrual,
policymakers appear to be encouraging users to hold balances for longer periods
rather than using the currency only for transactional purposes.
In parallel, digital yuan wallets
will be formally included under China’s deposit insurance regime. This provides
explicit protection for user balances, mirroring safeguards available to
conventional bank deposits and reinforcing confidence in the instrument’s
safety.
Changes
to Banking and Reserve Management
The action plan also introduces
adjustments to how financial institutions manage digital yuan balances on their
balance sheets. Commercial banks will count customer digital yuan holdings
toward reserve requirement calculations, integrating the currency into standard
liquidity and risk-management frameworks.
Nonbank payment institutions, which
play a significant role in China’s payments ecosystem, will face stricter
requirements. These firms will be required to hold full reserves against
digital yuan balances they manage, tightening oversight and reinforcing the
central bank’s control over issuance and circulation.
The PBOC will retain its two-tier
distribution model, under which the central bank issues the digital yuan while
commercial banks and approved institutions handle retail-facing services.
However, the plan adds clearer operational rules and supervisory standards to
this structure.
Formalizing
a “New Generation” CBDC System
According to central bank officials,
the action plan establishes a comprehensive management framework covering
measurement standards, circulation mechanisms and ecosystem integration. The
objective is to embed the digital yuan more deeply into existing financial
infrastructure rather than operate it as a standalone experimental product.
The plan outlines new systems for
monitoring usage, managing operational risks and coordinating between the
central bank and participating institutions. These measures are designed to
support scalability as digital yuan usage expands across sectors, including
retail payments, public services and select cross-border scenarios.
Adoption
Challenges and Policy Motivation
Despite years of pilot programs and
nationwide availability, the digital yuan has struggled to displace entrenched
private payment platforms that dominate daily transactions in China. Most
consumers continue to rely on mobile payment services offered by large
technology companies, limiting the digital yuan’s role in everyday commerce.
By introducing interest and
deposit-style protections, policymakers appear to be addressing some of the
practical disadvantages that have limited adoption. The changes may make
digital yuan wallets more attractive as a store of value, not just a payment
rail.
However, authorities have not
provided projections on how these measures will affect user behavior or market
share. Any shift is expected to be gradual, particularly given the maturity and
convenience of existing payment options.
Market
and Industry Impact
For banks, the new framework creates
both opportunities and operational challenges. Interest-bearing digital yuan
products could attract customer balances, but institutions will need to update
systems, compliance processes and risk models ahead of the 2026 rollout.
For nonbank payment firms, stricter
reserve requirements may increase costs and reduce flexibility, potentially
reshaping competitive dynamics within China’s payments industry. The broader
impact on transaction volumes and liquidity flows remains uncertain.
What
Comes Next
Implementation work will continue
through 2025 as banks and payment institutions prepare for the new rules.
Regulators are expected to issue further technical guidance on interest rates,
wallet structures and reporting requirements.
The start of 2026 will mark a
critical test for whether the digital yuan can transition from a state-backed
payment experiment into a fully integrated component of China’s monetary
system.
