China is preparing to take a major step in the evolution of its central bank digital currency (CBDC) by redefining the e-CNY as “digital deposit money,” a move experts say will broaden its practical applications and reinforce China’s leadership in global CBDC innovation.
People’s Bank of China (PBOC) Vice-Governor Lu Lei revealed on Monday, via the central bank-affiliated Financial News, that the PBOC has issued an action plan to enhance the management framework and financial infrastructure supporting the digital renminbi.
Under the new plan, effective January 1, 2026, the e-CNY will transition from a digital cash model to an account-based “digital deposit money” model. This shift will allow the e-CNY to function as a liability of commercial banks, while still operating under the central bank’s technical oversight and regulatory framework, Lu explained.
The redesigned e-CNY will remain compatible with distributed ledger technologies and retain key monetary functions, including serving as a unit of account, store of value, and means for cross-border payments.
Liu Xiaochun, vice-president of the Shanghai Finance Institute, highlighted that the upgrade allows the e-CNY to bear interest, moving it from M0 (cash in circulation) to M1 (cash plus demand deposits). “This makes China the first country to designate its CBDC as an interest-bearing deposit money, reinforcing its leadership in digital currency development and financial innovation,” Liu said.
The shift is expected to increase adoption by businesses and enhance the e-CNY’s utility for cross-border transactions, including initiatives like Project mBridge. Previously, as a cash-based digital currency, the e-CNY could not be used directly for bank-to-bank cross-border payments and had to be converted into deposits first, adding extra costs and limiting its use abroad.
The action plan also specifies that digital renminbi wallet balances will be classified according to liquidity, while balances held by bank-type operating institutions will be subject to reserve requirements. Xiang Haotian, associate professor at Peking University’s Guanghua School of Management, noted that if reserve requirements are set low, commercial banks will have stronger incentives to promote e-CNY usage.
Xiang added that a critical factor for policymakers will be how the e-CNY interacts with existing deposits—whether it substitutes or complements them. While the move shifts the e-CNY from M0 to M1, its potential inclusion in M2, which covers M0, M1, and time deposits, remains unclear.
