Why China Is Offering Interest on Its CBDC

China is stepping up its push for digital currency adoption. Starting January 1, users of the e-CNY—the country’s central bank digital currency (CBDC)—will be able to earn interest, and their holdings will be protected under the country’s deposit insurance system, giving consumers more confidence in embracing the digital yuan.

The move is intended to spark wider use, from payroll and loans to investments, and could be a game-changer for underbanked populations. By making the e-CNY a staple of everyday transactions, the government not only hopes to modernize payments but also gain tighter control over monetary policy and track currency flows.

A Battle Against the Payment Apps

China’s CBDC is already the most widely used in the world. As of November, the government had processed more than 3.4 billion transactions worth nearly 16.7 trillion yuan, or about $2.38 trillion.

However, adoption of the e-CNY has been frustratingly slow, as traditional payment apps continue to dominate the market.

WeChat Pay, one of the two leading platforms alongside AliPay, processed $15.4 trillion in transactions in 2024.

Chinese officials have pushed WeChat to integrating the digital yuan into its platform, aiming to boost consumer usage. The government has also asked WeChat to reduce its share of the mobile payments market to create more room for the digital currency.

China is positioning the CBDC as a tool to bring people into the economy. Holders of the e-CNY can earn interest even without a traditional bank account. Officials are also hoping that adoption will spread beyond urban centers to rural areas of the country.

Reaching Across Borders

In the B2B landscape, the Chinese government has been exploring the use of its CBDC for cross-border payments.

Last month, China and the United Arab Emirates completed their first-ever cross-border payment using a CBDC. The government also announced that South Africa’s Standard Bank had become the first institution in Africa to join its CIPS payment network.

Meanwhile, China’s government has continued cracking down on the use of stablecoins, encouraging businesses to adopt the digital currency instead. Several financial entities in the region, like Ant Group and JD.com, had planned to launch stablecoins for use in Hong Kong but ultimately reversed their plans under regulatory pressure.