How China is upgrading its digital yuan for the stablecoin era

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”.\nThe move, which will allow the digital currency to function like a deposit in a bank account, is expected to broaden global usage of the e-CNY by making it more attractive to banks and individuals, but it also reflects Beijing’s cautious attitude as it focuses on maintaining essential financial oversight, analysts said.\nStarting 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.\nIssued 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.\nThe 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.\nBut 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.\nLu Lei, a deputy governor of the People’s Bank of China, said the digital yuan in the future would fulfil the functions of money “as a measure of value, a store of value and a means for cross-border payments”.\nIt will be “a modern digital payment and circulation instrument that is technologically supported and regulated by the central bank, bears the liability attributes of commercial banks, is account-based, incorporates features of distributed ledger technology, and is issued and circulated within the financial system,” Lu wrote in an article published in Financial News, an outlet affiliated with the central bank, on Monday.\nThe digital yuan is evolving less like a crypto-native instrument and more like a digitised extension of the existing deposit and payment system\nMatteo Giovannini, Industrial and Commercial Bank of China\nCentral bank monetary regulation and central bank-led digital currencies currently face rising challenges posed by rapidly evolving non-government-issued digital payment instruments, from cryptocurrencies to stablecoins, according to Lu.\n“Achieving both the low-cost, high-efficiency advantages of digital payment methods and ensuring effective macroeconomic regulation and orderly market development is a practical requirement that central banks in all countries must address,” he said.\nWhile the digital yuan functions directly as a form of bank deposit, stablecoins act more like a personal cheque – a medium of exchange that represents an underlying fiat currency, according to Liu Xiaochun, an adjunct professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance.\nUnlike stablecoins, the e-CNY could also be used without an internet connection via near-field communication (NFC) technology, and it was still subject to China’s foreign exchange controls, Liu said.\nDespite the United States’ passage of the “Genius Act” – a law designed to create a regulatory framework for stablecoins – in July, Beijing has reaffirmed its hardline position towards virtual currencies in recent months, with central bank governor Pan Gongsheng warning of the risks posed by stablecoins in October.\nMatteo Giovannini, senior finance manager at the Industrial and Commercial Bank of China, said the central bank’s new action plan made clear that China was not moving towards a privately issued, asset-backed digital currency model – as represented by stablecoins – but in the opposite direction: deeper institutionalisation of the digital yuan within the formal banking and monetary system.\n“The digital yuan is evolving less like a crypto-native instrument and more like a digitised extension of the existing deposit and payment system, backed by sovereign authority and governed by prudential rules,” said Giovannini, who is also an AsiaGlobal fellow at the University of Hong Kong.\nChina wants the efficiency of a digital currency without the volatility, governance uncertainty or shadow-banking risks associated with private digital money\nMatteo Giovannini, Industrial and Commercial Bank of China\nBy incorporating digital yuan balances into reserve requirement frameworks and imposing full margin requirements on non-bank participants, the PBOC was clearly seeking to prevent regulatory arbitrage, financial disintermediation and systemic risk, Giovannini said.\nThe future trajectory of the e-CNY would be one of cautious expansion paired with stronger institutional safeguards rather than rapid disruption, he added.\n“China wants the efficiency and technological benefits of a digital currency without importing the volatility, governance uncertainty or shadow-banking risks associated with private digital money.”\nLu added that cross-border use of the digital yuan would continue to grow as its reach expanded, service costs reduced and its capabilities were enhanced through ongoing technological advancements, easing cross-border trade and investment financing and supporting innovation in offshore financial services.\nThe digital yuan is already being used in cross-border payments via Project mBridge, a multi-country central bank digital currency platform coordinated by the Bank for International Settlements.\nAs of the end of November 2025, the digital yuan had processed a total of 3.48 billion transactions with a cumulative value of 16.7 trillion yuan (US$2.238 trillion), according to Lu.\nProject mBridge had processed transactions worth a combined 387.2 billion yuan, with the digital yuan accounting for 95.3 per cent of those payments in value terms, he added.\nBeijing has accelerated efforts to promote the global use of the e-CNY in recent months, opening an international operations centre for the digital yuan in Shanghai in September and promoting a cross-border payment pilot project with Singapore.\n