China's central bank will allow commercial banks to pay interest on digital yuan holdings starting Jan. 1, 2026. The People's Bank of China (PBOC) described this as shifting the currency from digital cash to "digital deposit currency" in a Monday announcement.

Lu Lei, a deputy governor at the central bank, said the adjustment follows 10 years of testing. Banks will manage digital yuan as part of their standard asset-liability operations under the updated framework.

Verified wallets will earn interest matching existing deposit pricing agreements. Balances receive the same protection as traditional deposits under China's insurance system, with non-bank payment institutions maintaining a 100% reserve ratio on digital yuan funds.

The PBOC handled 3.48 billion digital yuan transactions worth 16.7 trillion yuan ($2.38 trillion) through November 2025. The central bank created the RMB International Operations Center in Shanghai last September to build blockchain settlement infrastructure and crosschain transfer systems.

Officials pledged last week to expand cross-border digital yuan activity, planning a pilot with Singapore. The bank is advancing CBDC payments with Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia.

China has banned cryptocurrency trading and mining domestically while developing blockchain applications. This path differs from the United States, where President Donald Trump banned CBDC creation through an executive order in January over concerns about financial stability, individual privacy, and national sovereignty.

Alex Gladstein, chief strategy officer at the Human Rights Foundation, said direct oversight of a digital currency gives the government access to transaction data and the ability to restrict access. The central bank already oversees commercial payment platforms WeChat Pay and Alipay, which handle most cashless transactions in China.

The interest-bearing feature aims to increase adoption as the digital yuan faces competition from established mobile payment systems. The currency struggled to gain traction despite government support since official pilots began in 2019.