China's Digital Yuan Now Pays Interest in Global Push

China's central bank has started offering interest on its digital yuan, a strategic move making the e-CNY the world's first major central bank digital currency (CBDC) to do so. The policy is designed to boost the currency's adoption, particularly for cross-border transactions, as a potential alternative to the U.S. dollar.

This development sets the e-CNY apart from other planned CBDCs, such as the digital euro from the European Central Bank, which is not expected to be interest-bearing when it launches.

The digital yuan project, initiated by a People's Bank of China (PBOC) research group in 2014, allows individuals and companies to convert traditional yuan into e-CNY held in digital wallets.

Pilot Programs and Adoption Metrics

Public pilot testing for the e-CNY began in October 2020 in the technology hub of Shenzhen. By September 2025, these trials were active in 26 different regions, allowing users to make payments by scanning QR codes at participating businesses.

According to Chinese media, cumulative transactions in the digital yuan had reached 19.5 trillion yuan ($2.8 trillion) by the end of 2025. The number of digital wallets has expanded to 230 million for individuals and 19 million for businesses.

Under the new policy, verified digital wallets are now eligible to earn interest on their e-CNY balances at an annual rate of 0.05%, aligning it with the benchmark for standard savings accounts at Chinese commercial banks. Interest began accruing on January 1, with quarterly payments scheduled to start in March through state-owned institutions like the Industrial and Commercial Bank of China and China Construction Bank.

Targeting Cross-Border Transactions

A key focus for Beijing is leveraging the digital yuan to streamline international business payments. In 2024, China launched cross-border pilot programs with nations including Saudi Arabia and Thailand, enabling companies to settle trade and financing directly in e-CNY.

Managed with blockchain technology, the e-CNY system promises significant upgrades over the current SWIFT network, the standard for international payments. While SWIFT transactions can take days to clear through intermediary banks, the PBOC claims its digital currency can process payments in seconds and reduce fees by as much as 50%.

The ultimate objective is to decrease reliance on the U.S. dollar in global trade and finance, thereby increasing the international presence of the yuan.

Domestic Challenges and Market Competition

Despite these ambitions, the digital yuan has struggled to gain traction within China. The country is already a leader in cashless payments, with over 80% of transactions conducted digitally—a stark contrast to Japan's estimated 40%.

The domestic market is heavily dominated by two private mobile payment platforms:

• WeChat Pay: Accounts for 47% of cashless transactions.

• Alipay: Holds a 32% market share.

Chinese consumers are deeply familiar with these services, which are already linked to interest-bearing bank accounts. The addition of a small interest rate to the e-CNY does little to differentiate it from the existing, widely accepted options. Limited merchant acceptance for the digital yuan further complicates its path to widespread domestic use.

The Road Ahead Remains Unclear

While the push for an internationalized digital yuan continues, significant barriers remain. China's strict capital controls, which impose limits on foreign exchange for individuals, are a major obstacle to broader adoption.

There is currently no official timeline for a full-scale launch of the e-CNY. The Chinese Communist Party's latest five-year plan, for the period of 2026 to 2030, pledges a commitment to the "steady development" of the digital currency but offers no concrete roadmap for its future.