China to usher in digital deposit money era for e-CNY

China has made a key breakthrough in the evolution of its central bank's digital currency by positioning the e-CNY as "digital deposit money", a move experts said is set to expand its use scenarios and strengthen the country's leadership in global CBDC exploration.

People's Bank of China Vice-Governor Lu Lei said in the central bank-affiliated Financial News on Monday that the PBOC has released an action plan to further strengthen the management framework and financial infrastructure for the digital renminbi, or e-CNY.

A new generation of measurement, management, operational and ecosystem frameworks for the e-CNY will take effect on Jan 1, 2026, Lu said, marking a structural shift for the digital renminbi from a digital cash model to a "digital deposit money" model.

This means that the e-CNY will be an account-based digital payment and circulation instrument as the liability of commercial banks, while remaining under the central bank's technical support and regulatory oversight, Lu said.

It will be compatible with distributed ledger technologies and perform core monetary functions, including serving as a unit of account, store of value, and means of cross-border payment, Lu added.

Liu Xiaochun, vice-president of the Shanghai Finance Institute, told China Daily that the change means the e-CNY can bear interest, expanding its monetary classification from M0, or cash in circulation, to M1, which includes both M0 and demand deposits.

"This makes China the first economy to position its CBDC as an interest-bearing currency — that is, a deposit money — strengthening China's leading role in CBDC development and digital financial innovation," Liu said.

The move, responding to long-standing market expectations, can boost adoption by businesses and enhance the e-CNY's suitability for cross-border use, including in initiatives such as Project mBridge, according to Liu.

"When the digital renminbi was positioned as cash, it could not be directly used for bank-to-bank cross-border payments and remittances but had to be converted from cash into deposits first, which involved additional costs and fees and constrained its use in cross-border payments," Liu said. "By redefining the digital renminbi as deposit money, this constraint can be addressed."

The action plan said that digital renminbi wallet balances will be classified into corresponding monetary categories based on their liquidity. Digital renminbi held by bank-type operating institutions will be brought under the reserve requirement framework.

If the reserve requirement ratio for digital renminbi is set at relatively low levels, commercial banks would also have stronger incentives to actively promote its use, said Xiang Haotian, an associate professor of finance at Peking University's Guanghua School of Management.

Xiang cautioned that how the digital renminbi interacts with existing deposits — whether as a substitute or a complement — will be crucial for policy design, noting that if existing bank deposits are simply converted into e-CNY, the overall macroeconomic impact may be limited.

Xiang added that the digital renminbi is set to move from M0 to M1 under the new framework, while whether it may potentially extend to M2 — which includes M0, M1 and time deposits — has yet to be clarified in official statements.