In an effort to offer an alternative amid the global rise of stablecoins – cryptocurrencies pegged to a reference asset, such as a fiat currency – China’s central bank is poised to upgrade its digital yuan from a cash equivalent to “digital deposit money”.
Starting from January 1, a new system for the measurement, operation and management of the digital yuan will be officially launched, the People’s Bank of China announced on Monday.
Issued by the central bank, the e-CNY is the digital form of China’s sovereign currency. First piloted in 2019, the “cash” version of the digital yuan has so far mostly been used in domestic retail transactions, with consumers making payments via digital wallet apps on their smartphones.
The upgrade to a digital deposit money system will create more incentives for banks and their clients to use the e-CNY, as the currency will be able to accrue interest and its reserve requirement ratio will be lowered.
But the new digital yuan will incorporate more emerging technologies than the traditional monetary system, increasing digitisation across all stages of issuance, circulation and payment processes.