The People’s Bank of China is reclassifying the digital yuan (e-CNY) from a cash-like instrument into an interest-bearing digital deposit currency, a move that deepens its integration into the banking system. By shifting the e-CNY into a deposit-style product that banks must remunerate and carry as a liability, the framework expands the footprint of a state-run payment rail into core funding, accounting, and day-to-day money flows.
The reform replaces the e-CNY’s M0-like posture with a deposit architecture closer to M1 mechanics, turning what looked like a payments tool into something that behaves like a bank deposit. Commercial banks will be required to pay interest on verified e-CNY wallet balances, with pricing guided by self-regulatory agreements that govern deposit rates, and interest is expected to be calculated on daily balances and paid quarterly—making the CBDC a competing deposit layer rather than a neutral settlement instrument.
A state deposit layer adds constraints and widens the control surface
Under the new treatment, e-CNY balances become explicit commercial bank liabilities and are classified by liquidity level for asset-liability management. That design hardwires the CBDC into bank treasury plumbing and makes it harder for banks to treat the instrument as a peripheral wallet product rather than a balance-sheet obligation. Deposit insurance will extend to e-CNY holdings, aligning them with insured deposits. Extending deposit insurance to a CBDC can be read as using the safety net of the traditional banking system to accelerate adoption of a state-controlled instrument, while transferring trust from market choice to institutional backstops.
The framework also imposes strict constraints on non-bank payment institutions. A 100% reserve requirement on digital yuan holdings eliminates any flexibility for these intermediaries and blocks balance-sheet arbitrage, effectively forcing private platforms to act as pass-through pipes for a public instrument. In practice, this reshapes competitive dynamics by limiting how non-banks can innovate around liquidity and funding.
These changes also come with heavy operational overhead. Banks must track verified wallet identities, compute daily interest across aggregated cohorts, and map CBDC balances into internal liquidity buckets—an implementation burden that expands compliance and systems complexity. The guidance still leaves key details open. The lack of published interest-rate parameters and the absence of operational templates for settlement and collateral treatment increases uncertainty, which is precisely where operational risk tends to hide.
Policy goals imply expansion, not neutrality
The stated objectives are straightforward: make the e-CNY more attractive, more competitive against private payment networks, and more viable for cross-border experimentation. Making balances interest-bearing is explicitly intended to push retention beyond transactional use, which signals a deliberate attempt to convert the CBDC into a store-of-value-like deposit product rather than a simple payment token. The competitive target is equally direct. The plan aims to improve the e-CNY’s utility relative to dominant private payment platforms, effectively using policy design to shift user behavior and platform incentives.
The international direction adds another layer of friction. Expanded cross-border pilots and the planned international digital yuan operations center in Shanghai indicate an intent to test interoperability and settlement flows, but they also raise the likelihood of regulatory and trust pushback given the governance and verification requirements embedded in the system. Even within the framework, major design questions remain unresolved. It is still unclear whether interest tiers, wallet-type exclusions, or differentiated rates by balance size will be introduced, leaving room for future rule changes that can alter user outcomes and bank balance-sheet behavior.
At the institutional level, the incentives shift in ways that can be uncomfortable for both banks and payment platforms. Treating the e-CNY as a deposit liability changes funding dynamics and deposit-mix incentives for banks, while the 100% reserve rule curtails flexibility for non-bank platforms and reduces their ability to compete on balance-sheet design. That combination resembles a structural reallocation of power toward a centrally managed rail.
The reform formally moves the e-CNY into an interest-bearing deposit model and embeds it inside bank safeguards, but the trade-offs are clear. A CBDC that behaves like a remunerated, insured deposit expands state reach into everyday money management, increases operational complexity for banks, and constrains private payment intermediaries by design.
