While Wall Street is still debating, the digital yuan has already started "distributing money" to users.

Author: Nancy, PANews

Historically, in the battle for customers in the financial industry, "sharing money with users" has always been the simplest and most effective weapon.

More than a decade ago, Yu'ebao and similar products used their visible and calculable returns to break down the boundaries of ordinary people's understanding of financial products and also launched a direct challenge to traditional finance.

A similar game is unfolding across the ocean. These past few days, Wall Street elites and crypto-native giants have been locked in a heated debate over market structure legislation concerning stablecoin yields. One side is attempting to uphold the high walls of traditional finance through regulation, while the other is trying to seize market share with real money.

Turning our attention back to the domestic market, the digital yuan is undergoing a crucial upgrade. As we all know, after several years of pilot programs, various incentives such as cash rewards, promotional activities in various scenarios, and policy initiatives have been implemented, but the digital yuan has consistently failed to gain widespread adoption among ordinary people.

With the launch of the digital yuan 2.0 this year, it has begun to generate interest, providing users with a direct and real-world need for the first time: earning interest by holding the currency. At the same time, the digital yuan has moved from M0 to M1, charting a longer-term path through smart contracts to become the underlying digital payment infrastructure.

Entering the era of interest-bearing currency, it has upgraded to a "yield-generating stablecoin".

If we only look at the scale, the progress of the digital yuan is not slow.

After ten years of research, development, and pilot promotion, the digital yuan has reached a considerable scale. As of the end of November 2025, a total of 3.48 billion transactions had been processed, amounting to 16.7 trillion yuan; 230 million personal wallets and 18.84 million corporate wallets had been opened, with the pilot program covering 26 regions in 17 provinces (autonomous regions and municipalities).

From infrastructure development and technology verification to the implementation of payment scenarios, the digital yuan has achieved the milestone of transitioning from being usable to being usable. This progress is attributed to both the continuous improvement of its underlying technology and strong policy support, which has continuously created opportunities for the digital yuan to be used through methods such as red envelope subsidies and cashback programs.

But is the digital yuan really common in daily life? The answer is not optimistic.

The contrast becomes even more apparent when placed within a larger payment system. In the third quarter of 2025 alone, non-bank payment institutions in China processed a staggering 85.28 trillion yuan in online payment transactions, totaling 338.019 billion transactions. Furthermore, commercial payment networks like Alipay and WeChat Pay have already penetrated deeply into high-frequency scenarios such as clothing, food, housing, and transportation. Their transaction volume, user stickiness, and capital accumulation capabilities far surpass what the digital yuan currently can match.

For most ordinary users and businesses, the digital yuan is just yuan in a different guise. In essence, it is still money lying in an account without earning interest, no different from the balance in WeChat or Alipay wallets on the user's end. Naturally, users lack the motivation to change their long-term usage habits.

This situation finally reached a turning point on January 1, 2026, when the digital yuan was officially upgraded to a "yield-generating stablecoin".

According to the latest policy, users can download the Digital RMB App from the official app store and earn interest on funds in their Class I, Class II, and Class III real-name wallets at the current deposit rate. The current annual interest rate is 0.05%, with interest accrual dates on March 20th, June 20th, September 20th, and December 20th each year. It should be noted that anonymous wallets (Class IV wallets) opened solely with mobile phone number verification do not currently accrue interest.

This means that users' short-term idle funds now have a channel to grow their wealth, with automatic interest accrual and zero operating costs. Although the interest rate is not high, it provides users with a reason to retain funds and gives the digital yuan a competitive advantage over traditional financial products.

In the crypto world, stablecoin yields are nothing new, typically achieved through DeFi, staking, or shadow interest rates. However, these mechanisms also come with challenges such as smart contract vulnerabilities, de-pegging risks, and regulatory uncertainties.

In contrast, the returns of the digital yuan are built within a safe and controllable framework under the supervision of the central bank, ensuring the stability and security of funds. The digital yuan is included in the deposit insurance program, enjoying the same security protection as ordinary deposits, with a maximum compensation limit of 500,000 yuan. This security structure backed by national credit is fundamentally different from the crypto world's reliance on code and consensus mechanisms.

With the further upgrade of the digital yuan, China has become the world's first economy to accrue interest on its central bank digital currency.

With the 100% reserve requirement over, banks finally have an incentive to act.

Besides the lack of enthusiasm from users, the participation and motivation of banks have also been a major challenge in the promotion of digital yuan.

Initially, the digital yuan was positioned as M0 (digital cash). This design limited its application scenarios and prevented it from generating returns for users. More importantly, it adopted a 100% reserve requirement system. This meant that commercial banks could not use the digital yuan deposited by users for fund utilization or lending; every transaction of digital yuan received by banks had to be fully submitted to the central bank and frozen in the central bank's account.

As a result, banks not only fail to generate revenue from these funds but also incur significant operational costs related to wallet opening, scenario expansion, anti-money laundering, and customer service. Consequently, banks lack sufficient incentive to actively promote the digital yuan.

"The traditional account system has little room for innovation. The digital yuan, positioned after M1, is becoming a financial infrastructure, giving market institutions more room for exploration," Caixin quoted a banking source as saying.

As the digital yuan gradually evolves into the M1 form, the situation has changed.

Under the new M1 model, the digital RMB balance in customers' bank-registered wallets becomes a liability for commercial banks. Banks only need to deposit a portion of the funds with the central bank according to the required reserve ratio, and the remaining funds can be used to independently develop value-added services, such as launching digital RMB-specific wealth management products.

This institutional adjustment provides banks with more profit margins, incentivizes them to actively participate in the construction of the digital yuan ecosystem, and gradually transforms banks from cost centers to profit centers, thereby enhancing their motivation to promote the digital yuan.

Currently, banks such as the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank of China, and China Merchants Bank all offer digital wallet services.

It should be noted that non-bank payment institutions (such as Alipay and WeChat Pay) are still required to deposit 100% reserves and cannot enjoy the same flexible financial operation space as banks.

Stripped of its payment label, smart contracts are becoming the new financial infrastructure.

The digital yuan is gradually shedding its label as a "payment alternative" and transforming into a more sticky digital financial infrastructure.

Unlike WeChat Pay and Alipay, which are essentially payment tools for storing traditional currency, the digital yuan is a currency in itself, used like electronic cash. Furthermore, the digital yuan is not built on blockchain, but rather on a newly designed account system. However, its core competitive advantage lies in the programmability of smart contracts, enabling it to be embedded in more complex performance and regulatory scenarios.

For example, in the prepaid sector, the digital yuan can achieve a fund management model of "unfreezing in installments and paying on demand"; in family and school settings, parents can limit their children's accounts to specific spending ranges; and in the area of government subsidies, the use of funds can be precisely controlled.

According to Caixin, the digital yuan adopts a restricted Turing-complete design, supporting only templated scripts permitted by the central bank. While this design limits certain functions, it effectively ensures the system's security and controllability. Compared to fully Turing-complete smart contracts in the crypto world, this design of the digital yuan avoids common risks associated with smart contracts, such as vulnerabilities, attacks, and governance failures. It's worth noting that the development of digital yuan smart contracts supports multiple programming languages, including fully Turing-complete languages like Solidity, which is compatible with Ethereum; therefore, its development potential is not limited.

Furthermore, the digital yuan has demonstrated payment resilience. Its dual offline payment function allows both parties to complete transactions via NFC on their mobile phones even in environments without a network connection. This capability is irreplaceable in emergency scenarios and special environments, whereas in encrypted systems, whether it's Bitcoin or stablecoin payments, almost all rely on a continuous internet connection to complete ledger synchronization and final settlement.

To bridge the digital divide and cater to the usage habits of different groups, including the elderly, students, and overseas visitors to China, the digital yuan has also been launched in various hardware wallet formats, including IC cards, wearable devices (such as watches), SIM cards, and mobile terminals. This is distinctly different from encrypted hardware wallets, which are primarily used for defensive purposes such as "cold storage" of private keys to prevent hacker attacks. The digital yuan hardware wallet focuses more on the inclusiveness of high-frequency payments. However, at present, due to the deployment costs and willingness of merchants to upgrade their payment terminals, the actual usage scope of the digital yuan hardware wallet remains limited, and its actual widespread adoption remains to be seen.

Currently, the digital yuan is rapidly evolving into a full-scenario currency, with its applications extending beyond retail. It has formed a replicable and scalable application model covering both online and offline aspects in areas such as wholesale payments, public services, social governance, and even cross-border settlements, and is expected to further become an indispensable infrastructure in the digital economy.

In particular, cross-border payments have seen a significant upgrade, supporting three-tiered transfers between countries, merchants, and individuals. With the rapid penetration of stablecoins in global cross-border payments, the digital yuan is accelerating its internationalization, becoming a crucial driving force for the RMB's internationalization. Through cross-border payments, the digital yuan can not only improve payment efficiency and reduce costs but also secure a place in the global payment system. For example, when overseas tourists spend money in China, they don't need to exchange foreign currency; they can simply use the digital yuan app to scan a code and complete the payment in their local currency at the real-time exchange rate. Currently, cross-border transfers through mBridge have exceeded $55 billion, with 95% settled using digital yuan.

In summary, the real test for the digital yuan to truly leap from a policy tool to a mass-market product may have only just begun. However, its path and potential are already clearer than in the past.