China to begin paying interest on its official digital currency: Report

China will reportedly start paying interest on its official digital currency, E-CNY, from January 1, in a move aimed at encouraging wider use, after nearly a decade of pilot programs and development. According to an article by Lu Li, deputy governor of the People’s Bank of China (PBOC), published in Financial News, commercial banks that operate digital yuan wallets will now pay interest to customers based on the amount of virtual currency they hold.

The initiative officially aligns the digital yuan with traditional bank deposits, giving it the same legal status as deposits held in commercial banks, as stated in a report published by Singaporean financial newspaper The Business Times. This regulatory change builds on China’s position as a global leader in developing official digital currencies since the launch of the digital yuan project in 2014.

China’s efforts come as households have increased their savings and loan growth has weakened to record lows at commercial banks, creating a backdrop of large deposit volumes and shrinking lending activity.

The report added that despite being trialled in more than half of the mainland provinces, E-CNY has struggled to achieve widespread adoption. The currency faces strong competition from established digital payment platforms such as WeChat Pay and Alipay, which dominate the payments landscape in China.

Internationally, China’s ambitions in cross-border digital payments have faced obstacles. The multilateral mBridge project, which aims to facilitate cross-border transactions, suffered a setback when the Bank for International Settlements withdrew last year over concerns about potential abuse and the risk of undermining the US dollar.

Interest rates on demand deposits at China’s largest banks fell to 0.05 percent after years of interest rate cuts, posing challenges for banks that manage large deposit volumes.

The People’s Bank of China has stepped up its efforts to promote the digital yuan, with recent steps including establishing a digital yuan operations center in Shanghai. This center supports cross-border payments platforms, blockchain technology, and digital asset development. In October, the Communist Party called for the “steady development” of China’s electronic yuan in the next five-year plan.

Unlike the United States and other countries that are embracing privately issued stablecoins backed by cash-like assets, Chinese authorities are focusing on the official electronic currency of the Chinese yuan. Despite signs of interest in stablecoins over the summer, officials remain concerned about risks such as speculation, fraud, and financial instability.