Chinaʼs digital yuan now pays interest and goes green

Best-selling author Richard Turrin reveals everything we need to know about China’s Digital Yuan, latest developments, and why it poses no threat to US stablecoins.

‘The comparison with US stablecoins paying interest is dead wrong.’

                                                                                                                                       Richard ‘Rich’ Turrin.

1. Why this major move shows success, not failure:

This is not a sign of failure for the digital yuan (e-CNY) as reported by some journalists. In fact, it is quite the opposite. As of late 2025, the e-CNY has processed over 3.4 billion transactions totalling ~ USD 2.3 trillion, representing more than 800% growth since 2023.

China has gained more practical experience in managing a CBDC over recent years than all the research papers and banking experts worldwide combined. Chinaʼs banks are also much more confident that e-CNY won't affect their deposit base, and with this latest version, they will play a key role in expanding its adoption.

What the PBOC has learned is that banks play a critical role in the integration of digital money into society, and that they canʼt go it alone without them.

Allowing banks to use ‘remunerated’ or interest-bearing digital yuan enables far more complete integration of the digital yuan into the financial system, which will be accompanied by greater use.

2. Why pay interest?

Because in the end, it is banks that are the most important intermediaries in the financial system and are responsible for both the distribution and creation of money, whether digital or traditional, in the financial system.

An interest-bearing (remunerated) e-CNY allows banks to pursue their traditional role in money creation with digital currency to greatly expand its use.

From a banking perspective, the first generation of e-CNY was considered a cash equivalent or M0. This meant that banks could not create money through interest on e-CNY, which inhibited its use in both retail and commercial loans.

Now e-CNY 2.0 is treated as M1, sometimes referred to as ‘narrow money’, which includes: M0 + demand deposits + checking-like accounts.

Remunerated e-CNY allows banks to better integrate it into bank balance sheets and allows banks to include e-CNY in reserves. These modifications allow e-CNY to be built into financial products across the bankʼs entire product line to vastly increase distribution.

3. Why this targets commercial rather than retail users:

Too much is made of the retail impact of this change. No Chinese retail user cares much about the interest on e-CNY.

Chinese users don’t earn interest on WeChat and Alipay balances, so itʼs hardly a deal breaker. The rates at ICBC are currently 0.05% on current accounts, so this is hardly an amount that will change retail user behaviour.

That said, these small interest rates make a big difference on large deposits that we might see in international trade, and I see the interest on e-CNY impacting commercial users far more than retail.

Supporting this assertion, the People’s Bank of China (PBoC) recently set up an international e-CNY centre in Shanghai with the goal of internationalising e-CNY. Here, the use of interest is a game-changer, due to the large sums involved.

The PBoC also continues advancing Project mBridge, a multi-CBDC cross-border settlement platform that allows international CBDC transfers.

Since early 2022, transaction value has increased from approximately USD 22 million to roughly USD 55.5 billion—a roughly 2,500-fold increase with e-CNY now accounting for over 95% of settlement volume on mBridge.

In November 2025, the UAE executed the first government transaction using its wholesale CBDC on mBridge, settling funds directly without intermediaries.

4. E-CNY pays interest using bank tokenized deposits:

To enable interest payments, the PBoC is allowing banks to issue their own completely interoperable e-CNY that is essentially a deposit token. These bank tokens will not have a PBoC credit guarantee but will be guaranteed by the issuing bank and covered by deposit insurance up to 500,000 CNY.

All e-CNY issued by banks will be closely monitored by the PBoC and will be fully interoperable with existing e-CNY payment systems. This is a major change in how e-CNY is issued, and the existence of two classes of e-CNY changes the very definition of e-CNY.

CBDCs are considered central bank currencies only. Now, e-CNY 2.0 users may have a mix of e-CNY in their wallet, some guaranteed by the PBoC, and others guaranteed by their issuing bank. Is this hybrid instrument still a CBDC? For now, yes, though some now consider it ‘digital cash’.

5. Does this actually help Chinese banks compete with Alipay and WeChat Pay in payments or loans?

It does not help banks compete in retail payments. The impact in this specific use will be very small. As stated earlier, the amount of interest is so small that it wonʼt drive people to use e-CNY over the convenience of the payment giants.

That said, it does help banks create new e-CNY banking products that use instant payments using fractional reserves and the pricing benefits that this leverage provides.

This is a big boost for banks in the provision of retail and SME financial products, mostly loans, using e-CNY because it provides instant payment, not because it provides a definitive competitive advantage.

It is more banks finally catching up than getting a boost from e-CNY.

WeChat and Alipay have had WeBank and MYbank digital banks since 2016, which have had the advantage of seamless interoperability with the walled gardens of their instant payment networks. If anything, WeBank and MYbank have had an advantage over commercial banks for years simply because they are so easy to use within their instant payment networks. This is the advantage of a superappʼs walled garden.

Note also that WeBank and MYbank will also have full access to the e-CNY, so banks donʼt get anything that the payment companies can’t access.

Banks will have to compete among themselves with rates for customers, and e-CNY does not confer a competitive advantage in interest rates on loans or savings to commercial banks over WeBank and MYbank.

The most important thing to watch with this change is how banks of all kinds will integrate smart contracts into their loan products. So far, we haven’t seen this development, but it’s coming in 2026.

6. Why the e-CNY paying interest will not impact US stablecoins

A number of Western commentators have opined that the digital yuan's interest gives it an advantage over US dollar stablecoins. Dramatic headlines include: ‘Stablecoin Yield Prohibition Boosts Digital Yuan Over USD’, or ‘Brian Armstrong warns stablecoin interest ban could hand advantage to Chinaʼs CBDC.’ These headlines are overly dramatic and are being used solely to force changes in the Clarity Act to allow stablecoins to earn interest.

The digital yuan, paying interest, will have absolutely no impact on US stablecoin use in trade because China and its businesses so far donʼt use stablecoins!

No one has the option of paying with a USD stablecoin or the e-CNY! These two digital payment systems are simply not in competition for payments anywhere in the world. This is why the headlines are only designed for shock value.

What these headlines and the accompanying articles all miss is the big question of where the yield comes from. This is where the comparison that is frequently made between US stablecoins and the interest-bearing digital yuan breaks down.

There are two scenarios for yield on stablecoins:

i) Yield as ‘reward’ from 3rd party:

In this scenario, a stablecoin wallet held by Coinbase or another crypto entity holding the userʼs coins uses ‘rewards’ to pay interest. They use coins on their books to generate yield from loans, which are paid in stablecoin.

This should be allowed, and the current battle over the Clarity Act is to have it included. Citizens should have the right to rewards as long as they acknowledge that these rewards increase risk.

ii) Yield from stablecoin issuer:

This scenario should be prohibited. The rules for stablecoins are clear that they must hold a 1:1 ratio of reserves to outstanding coins with no creation of money through interest. Allowing interest would only push the issuers to invest in higher-yield, higher-risk assets, and it is a recipe for disaster for stablecoin issuers.

But Chinaʼs e-CNY is remunerated or has yield! Yes, but the e-CNY is not a stablecoin!

The e-CNY now uses a new class of coin, which is a tokenized bank deposit, to achieve this. It is not equal to No 2 above and is closer to No 1, where the bank (TradFI) pays the interest (reward) but mints its own tokenized deposit in order to pay interest. The interest is provided by traditional banking operations, not digital alchemy that achieves rates up to and beyond 10% with the accompanying risk.

7. Could the digital euro adopt this?

For now, there is no way European banks would allow it. This solution will only be available to the digital euro after several years of use.

The reason is that European banks loathe the digital euro and argue that it will adversely impact their deposits. Paying interest would only reinforce their position that the digital euro is dangerous to them and the greatly overstated notion that people will pull money out of the banking system and put it in stablecoins.

Even in China, the PBoC was only empowered to make the shift to remunerated CBDC after it was clear that e-CNY had little impact on bank deposits.

8. Lessons for stablecoins?

The most important lesson for stablecoins is that until they are fully integrated into the banking system, they will always be secondary players in the payment market.

Whether stablecoin proponents like banks or not, they are still the gateway into people’s wallets and trust. Without them, digital cash, whether CBDC or stablecoin, isn’t going anywhere.

China’s experience with the digital yuan shows how banks control the flow of money in society. China’s PBoC tried going it alone and pushing the e-CNY without the banks and only had limited success.

On the positive side for stablecoins, e-CNY does show that, eventually, banks, and other licensed and regulated crypto market entities should be given the ability to pay rewards or interest on stablecoins held by users on their systems.

9. Digital Yuan Carbon Initiative

The digital yuan is now being used to promote mass transit, with points earned for taking the metro, a shared bike, or using an electric vehicle with ride sharing! This is an important development because it serves as a counterweight to the persistent negative argument that CBDC can be used to control spending.

In this case, we see the good that CBDC can do in promoting green behaviour.

It does show how e-CNY can be used to deliver whole-nation subsidies and social transfers that are targeted and traceable.

This will be a breakthrough for other programs, such as social assistance payments, as it is fully digital, reducing theft and allowing for instant management.

For now, the program is available in Shanghai only and requires users to opt-in. The points are determined automatically by integrated platforms, and the incentives are paid out in digital yuan.

This is a positive use of digital yuan to enforce policy objectives and reward people for green behaviour.

The rewards are small, so I donʼt expect this to be a huge hit, but it shows the benefits of CBDCʼs ability to eventually provide nationwide coverage for many other societal payment initiatives.

About Richard ‘Rich’ Turrin

Best-Selling Author, Fintech, Innovation, and AI Consultant

Rich Turrin is the international best-selling author of ‘Cashless - China’s Digital Currency Revolution’ and ‘Innovation Lab Excellence’. He is the No 4 fintech influencer worldwide on the prestigious Onalytica listing and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking.  Living in Shanghai for the last decade, Rich experienced China going cashless first-hand.

To read more of Rich’s latest writings, visit his newsletter richturrin.substack.com.