China’s digital yuan is about to change in a way that goes far beyond payments.
As of January 1, 2026, the People’s Bank of China (PBC) has officially put a new Action Plan into effect that upgrades the digital yuan (e-CNY) from a digital version of cash into digital deposit money.
It’s a technical shift with big implications for banks, blockchain, and how state-backed digital currencies actually work.
A Structural Shift In Play
The goal is to move past pilot-stage experimentation and fully integrate the e-CNY into China’s financial system.
Unlike cryptocurrencies or stablecoins that circulate outside banks, the digital yuan is designed to stay firmly inside regulated channels. China is doubling down on a central bank-commercial bank two-tier system, where banks manage wallets and payments while the central bank controls rules and infrastructure.
Why Banks Are Still in Control
Under the new framework, e-CNY held in commercial bank wallets will be treated as bank liabilities, included in reserve requirements, and protected by deposit insurance. Banks will also pay interest on verified e-CNY wallets, following existing deposit pricing rules.
This structure is meant to avoid the kind of financial disintermediation regulators worry about, especially as digital payments scale.
In simple terms: digital yuan balances won’t drain liquidity from banks or create parallel money systems.
Blockchain, But Without the Chaos
China isn’t rejecting blockchain.
The e-CNY follows a hybrid model built around “Account System + Coin Strings + Smart Contracts.” Accounts handle scale and compliance, while blockchain features are applied where traceability and automation matter.
The PBC argues this approach delivers efficient digital payments without losing regulatory visibility.
Cross-Border Payments Are the Real Focus
One of the clearest priorities is cross-border settlement. Through projects like mBridge, blockchain is being used to speed up international payments while keeping monetary control intact.
By late 2025, the e-CNY accounted for about 95.3% of transaction volume on the platform.
As Lu Lei explains, the digital yuan is being shaped to “serve the real economy”. It will be interesting to see how this pans out.
