In an effort to increase adoption of its central bank digital currency (CBDC), China will allow digital yuan users to earn interest on their holdings, according to a report in Bloomberg. Interest payments have been reserved for traditional Chinese bank deposits in the past. But starting on January 1st, the digital yuan will be on equal legal footing with those more traditional deposits in the commercial banking system.
China has been a key innovator in the development of government-backed digital currencies around the world, as its digital yuan project originally began on a trial basis all the way back in 2014. Despite existing for more than a decade, the digital yuan has not been rolled out on a nationwide basis and has struggled to compete with existing digital payment solutions such as Alipay and WeChat.
While the availability of interest payments for digital yuan users is intended to help the digital currency project compete, the reality is that the biggest banks are currently only paying out around 0.05% on deposits, so it’s unclear if this move will have much of an impact. In contrast, users of various crypto exchanges around the world, such as Binance and Kraken, are able to access yearly rewards upwards of 6% on deposits made in U.S. dollar-denominated stablecoins such as USD Coin (USDC) and Tether (USDT). The digital yuan is also not available on public blockchain networks as of now, which means users are unable to take advantage of opportunities in the realm of decentralized finance (DeFi).
While stablecoin users can earn interest when their holdings are deposited at crypto exchanges and other financial institutions, the issuers of these dollar-pegged tokens may also soon be able to pay interest to their users directly. That could change depending on the specific language that is included in the crypto market structure bill that is expected to make its way through Congress and be signed into law by President Trump in the coming months.
Despite the lack of a nationwide rollout, the Chinese Communist Party has called for the continued development of the digital yuan as part of a five-year economic plan. Additionally, the People’s Bank of China launched an operations center for the digital yuan in Shanghai in September.
https://x.com/Crypto_Briefing/status/1965095356808790400?s=20
Stablecoins and CBDCs have become increasingly relevant in terms of geopolitical power dynamics over the past decade. In September, an advisor to Russian President Vladimir Putin pointed to regulatory developments around stablecoins and crypto in the United States during Trump’s second term as a play by the United States to protect and increase its economic dominance around the world. The European Central Bank (ECB) also has its own digital euro project that is often touted by Christine Lagarde, despite the ECB president’s past criticisms of bitcoin.
Due to the large amount of centralized control the Chinese Communist Party prefers to have over its economy, the creation of a highly controlled and surveilled digital currency is preferable to the uncontrolled nature of the Bitcoin network. That said, a large amount of bitcoin mining is said to still take place in the Asian nation.