Interest in the Digital Yuan
In early 2026, the renminbi has entered a more advanced phase of development, increasingly characterised by a “digital-first” orientation within China’s financial system. A notable recent step has been the People’s Bank of China’s (PBOC) decision to apply a 0.05% interest rate to balances held in verified digital yuan (e-CNY) wallets. This effectively moves the e-CNY beyond its original role as a digital cash substitute towards a form of digital deposit money. Under the new framework, commercial banks are permitted to recognise e-CNY holdings as on-balance-sheet liabilities, supported by deposit insurance. While the yield is modest, the policy marks a significant change in design philosophy by introducing a basic return on holding the currency.
The move also addresses a practical constraint that has limited adoption to date. Although cumulative e-CNY transactions reached approximately CNY 16.7 trillion (USD 2.41tn) by late 2025, usage has remained concentrated, with private payment platforms such as Alipay and WeChat Pay continuing to dominate day-to-day transactions. By attaching a yield, the authorities are providing a clearer economic incentive to retain digital yuan balances, potentially improving both utilisation and wallet persistence among households and firms.
Beyond the domestic context, these developments support China’s longer-term objective of promoting the renminbi’s role in international settlement. Project mBridge, which links multiple central banks via a shared digital infrastructure, continues to expand its transaction volumes and scope. By enabling direct, low-cost cross-border settlements without reliance on traditional correspondent banking channels, the platform enhances the operational appeal of the renminbi for trade invoicing, particularly among emerging market participants seeking diversification in settlement currencies.
Despite these advances, the renminbi remains underrepresented in global reserve allocations, accounting for less than 2% of official holdings. Nevertheless, the currency has remained relatively stable, appreciating against the US dollar and trading within a narrow range. Valuation models from institutions such as the IMF broadly support our view that the renminbi remains materially undervalued. For investors, its appeal lies less in near-term gains and more in the convergence of gradual internationalisation, incremental policy reform and the continued development of a credible sovereign digital currency infrastructure.
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