China Breaks CBDC Orthodoxy: Digital Yuan to Pay Interest Starting 2026

Core Viewpoint - China's digital yuan has transitioned to an interest-bearing currency, marking a significant shift from the global consensus that central bank digital currencies (CBDCs) should not accrue interest [1][4]. Group 1: Global CBDC Principles - The global CBDC community generally agrees that retail CBDCs should act as digital cash equivalents, not as interest-bearing savings instruments [2]. - The European Central Bank (ECB) has explicitly stated that no interest will be paid on digital euro holdings to prevent it from becoming a savings vehicle that could drain bank deposits [2][3]. - The Federal Reserve has raised concerns that an interest-bearing CBDC could disrupt the US financial system by leading to bank disintermediation, where households might prefer central bank deposits over traditional bank accounts [3]. Group 2: China's Digital Yuan Policy - China's digital yuan is being repositioned from an M0 instrument (cash in circulation) to an M1 instrument, which includes demand deposits [4]. - The People's Bank of China (PBOC) has implemented this policy through its "Action Plan for Strengthening Digital Yuan Management and Financial Infrastructure," which applies to verified wallets and follows demand-deposit rules with quarterly interest settlements [5]. - The definition of digital yuan has been revised to include "the related payment system," indicating its evolution beyond a simple cash substitute [6].