Two ‘key points to watch’ in the evolution of China’s central bank digital currency (CBDC) have been highlighted in a report likely to make interesting reading for those outside the country eyeing the state-backed digital money initiative’s twists and turns.
The People’s Bank of China (PBoC) is at an advanced stage of rolling out the digital yuan (also known as the e-CNY), putting the country well ahead of most major nations and jurisdictions when it comes to CBDC.
But, as has also been the case with the world’s few other CBDCs currently live, the initiative has so far struggled to muster a great deal of enthusiasm among the general population.
The report – titled ‘The Shift in China’s CBDC (Digital Yuan) Policy and Key Implications’ (EN-lang version – 6 July) – describes use of the CBDC as having ‘stagnated’ in a country where private mobile payment platforms such as Alipay and WeChat Pay are already very popular and ‘offer superior convenience’; and, financial institutions ‘responsible for its distribution face heavy operational burdens, including anti-money laundering (AML)/combatting the finance of terrorism (CFT) compliance, while having limited revenue opportunities, thereby weakening incentives for adoption.’
The two developments highlighted in the analysis, published by the Japan Research Institute (JRI), are: first, a recent repositioning of the digital yuan from ‘digital cash’ to ‘digital deposits’, which, it states, could better enable the digital yuan to ‘gain traction as a new means of payment in China’; and, second, the possibility of the digital yuan ‘serving as a catalyst for RMB [renminbi – the official name of China’s currency] internationalisation.’
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Interest-bearing CBDC
The digital yuan has not yet been formally issued but pilot tests have been taking place involving real-world use since 2020, the 12-page (EN version) paper points out.
In a significant move, the PBoC announced on 29 December 2025 that, effective from 1 January 2026, the digital currency would be repositioned from ‘digital cash’ to ‘digital deposits’ – and that commercial banks would be allowed to pay interest on it – the paper notes, pointing out that, in general, CBDCs are defined as a digital form of cash and are typically non-interest-bearing.
‘This policy change therefore represents a major shift in the institutional design of the digital yuan and marks an important milestone in international discussions on CBDCs,’ the paper states.
With the PBoC having incorporated digital yuan operations into its reserve requirement framework, the digital currency is defined as a liability of commercial banks, covered by deposit insurance, and structured to support credit creation, including lending, the paper explains.
‘Domestic and international think-tanks have assessed that, following this policy change, the digital yuan has come to resemble tokenized deposits more closely than a conventional CBDC,’ it summarises. ‘They point out that allowing commercial banks to treat it in the same way as deposits could improve their incentives to support its adoption. Some also note that its use may increasingly shift toward corporate payments and that it could be utilized as a means of expanding cross-border transactions denominated in RMB.’
RELATED ARTICLE Chinese authorities step up efforts to promote digital yuan – a news story (18 May 2022) on state authorities introducing payments by CBDC for public transport fares, taxes and civil servant salaries
Internationalisation push
RMB internationalisation aims to expand the widespread use of the currency in cross-border trade settlements and financial transactions, with the ultimate long-term vision of establishing the RMB as a primary international reserve currency that could serve as an alternative to the current US dollar-denominated monetary system, the paper states.
But it quotes IMF statistics that the RMB accounted for just two per cent of global foreign exchange reserves as of 2025, while its share in SWIFT-based settlements ‘remains around two per cent to five per cent’. ‘Thus, it can hardly be said that its global usage is widespread,’ the paper states.
References are made to ‘Project mBridge’, an international project aimed at promoting CBDC-based cross-border payments that was instigated in 2021 by the Bank for International Settlements (BIS) Innovation Hub and four national central banks (the BIS announced in October 2024 that it was handing over the mBridge initiative to its project partners).
The report notes that mBridge is ‘envisioned as a means to break away from this status quo and secure a mechanism for RMB-denominated settlements, even in environments with heightened geopolitical risks and active economic sanctions.’
But it states that since the BIS stepped back from project management, ‘detailed official reports on mBridge have not been published, leaving recent transaction details and usage status highly opaque’.
‘Nevertheless, according to the PBoC, 95.3 per cent of transactions on mBridge are denominated in the digital yuan, underscoring that it is a China-led project,’ it states.
RELATED ARTICLE CBDC ‘industrial park’ opens in China to advance digital currency development – a news story (24 October 2023) on a government-backed ‘industrial park’ to encourage CBDC initiatives having opened in Shenzhen (metropolis in southeastern China that links the country’s mainland with Hong Kong)
Building mBridge(s)
The paper describes the participation of Middle Eastern oil-producing nations such as the United Arab Emirates (UAE) and Saudi Arabia in mBridge as ‘strategically crucial.’
‘This could expand the scope for utilizing RMB-denominated settlements in oil trades (the so-called “petro-RMB”), posing a challenge to the traditional “petrodollar”-centric settlement structure,’ it explains.
The paper describes mBridge as functioning ‘less as a tool to circulate the RMB widely across the globe, and more as infrastructure to maintain and expand RMB-denominated settlements within specific countries, transaction areas, and use cases.’
It continues by stating that mBridge currently ‘remains at the MVP [minimum viable product] stage, and many uncertainties remain as to whether its utilization will expand in line with China’s strategic intentions.’
But the two ‘key points to watch’ interlink. ‘Compared to a cash-based model that faces compliance challenges, a deposit-based model grounded in existing bank deposits has a higher affinity with mBridge,’ the paper states. ‘Thus, this latest policy change could help expand the use of mBridge over the medium to long term.’
‘Going forward, it is essential to continue monitoring how China positions mBridge within its strategy for RMB internationalization, how the digital yuan will be utilized within that framework, and how the international community responds to these developments,’ it concludes.
RELATED ARTICLE More ‘appeal’ required to ‘make hate go away’: China official on digital yuan – a news story (24 March 2023) on comments from Changchun Mu, director of the PBoC’s Digital Currency Institute, during a panel discussion hosted by the Bank for International Settlements (BIS) in Switzerland – see below
‘Not very much value’ for users
The public official most closely associated worldwide with the digital yuan, Changchun Mu, who is director of the PBoC’s Digital Currency Institute, told an event audience just over three years ago that the CBDC needed to be made “more appealing and more user-friendly” in order to “satisfy market needs” and boost adoption.
“Every day we are collecting comments from every source of feedback, including social media, the app markets and even the call centres – especially the negative ones [feedback]. And we know that users hate us,” he said, during panel discussion hosted by the BIS in Switzerland in March 2023.
“But we have to collect all those negative comments, upgrade our apps to make them more satisfactory for the users – and then make the hate go away,” he added, triggering (warm) audience laughter.
Finance ministries, regulators and payments industry leaders outside China are keeping close tabs on the digital yuan.
At an event in London just a couple of weeks ago (30 June 2026), for example, the chief executive of French interbank automated clearing house STET, Régis Folbaum, observed that “no-one wonders about [questions] the political will of the central government in China but [there’s] still not very much value creation in terms of use cases for individuals.”
The JRI is a subsidiary of the Tokyo-headquartered Sumitomo Mitsui Financial Group, which owns one of Japan’s largest banks, Sumitomo Mitsui Banking Corporation (SMBC).
