The first large-scale adopter of "yield-bearing stablecoins" is China

Wen | Lin Wanwan

On January 15, 2014, the annualized yield of Yu'ebao reached 6.763%. On the same day, the interest rate for bank demand deposits was 0.35%.

19 times.

This number hit like a blunt instrument, awakening hundreds of millions of savers in China: it turns out that my money in a bank demand deposit is losing interest at a rate 19 times lower. It's not that there is no interest; it's that the interest is taken by others.

What is the essence of Yu'ebao? It simply pools depositors' money and deposits it into a bank's time deposit account: that is a world not regulated by interest rates, and then shares the earnings with the depositors.

There is no technical innovation, but it tore open an invisible gap in the Chinese financial system: ordinary people discovered for the first time that their money has time value, and this value should belong to them.

Eleven years later, on December 29, 2025, the People's Bank of China announced: starting January 1, 2026, interest will be paid on the balance of digital yuan wallets.

Once again, it’s about "making digital money earn money," but this time the player has changed to the central bank.

And interest calculation is a ticket to entry, proving that digital yuan has finally figured it out: merely being "correct" is not enough; users need a reason to choose you.

The Dilemma of "Theoretically Correct"

The digital yuan began its pilot in 2019. After six years, the data looks quite impressive: 230 million personal wallets, a total of 3.48 billion transactions, amounting to 16.7 trillion yuan. But if you ask people around you, how many use it in their daily lives?

The answer is likely: received a red envelope, tried it once, and then that was it.

Where is the problem? It lies in a term that sounds very academic: M0.

The central bank initially positioned the digital yuan as a "digital substitute for cash." Cash is M0, currency in circulation, which does not earn interest. Therefore, the digital yuan also does not earn interest. The logic chain is perfectly coherent. But the problem is that the usage scenarios for cash are disappearing.

Before 2019, the penetration rate of mobile payments in China had already exceeded 85%. Open WeChat or Alipay, scan, and it’s done in a fraction of a second. Asking users to switch to a new tool for a "dual offline payment" (paying without internet) feature has too high a persuasion cost; how many scenarios in daily life require immediate payment without internet?

What’s worse is that the M0 positioning brings a structural problem: banks have no incentive to promote it.

The concept of 100% reserve means that if a user deposits 100 yuan into a digital yuan wallet, the bank must deposit 100 yuan in reserves with the central bank, and not a penny can be touched. The bank bears all the costs of developing the system, maintaining the network, and promoting users, but cannot earn a penny from that 100 yuan. I bear the cost, but there is no profit. No matter how you calculate it, this doesn’t make sense.

So after six years of piloting the digital yuan, there have been countless scenarios, red envelopes, and activities, but it has never formed a spontaneous network effect. Users have no motivation to hold it, and banks have no motivation to promote it; if neither side moves, the wheel cannot turn.

What Changed This Time: From M0 to M1

On December 29, 2025, the central bank released a lengthy document titled: "Action Plan for Further Strengthening the Management Service System of Digital Yuan and Related Financial Infrastructure Construction." The document is long, but the core change can be summed up in one sentence: the digital yuan has transformed from "digital cash" to "digital deposits."

The document mentions three key changes:

First, interest calculation. Starting January 1, 2026, the balance in digital yuan wallets will earn interest at the rate of demand deposits. Currently, the demand deposit rate is about 0.05%, meaning that if you deposit 10,000 yuan for a year, you can earn 5 yuan. The interest may not be much, but going from 0 to 0.05% is a qualitative change.

Second, bank liabilities. Previously, the digital yuan was a liability of the central bank, just like the paper money in your pocket. Now it has become a liability of the bank. Banks can include this money in their balance sheets for lending and investment, allowing them to earn profits. Of course, they must pay reserves, but it is no longer 100%.

Third, deposit insurance. The digital yuan is included in the scope of deposit insurance. Your money is backed by national credit, just like regular deposits.

The original words of Lu Lei, deputy governor of the central bank, were: the digital yuan "has transitioned from cash-type version 1.0 to deposit currency-type version 2.0."

In plain language: the digital yuan in your wallet finally starts to have time value.

However, an interest rate of 0.05% is almost negligible. But the significance of this change goes far beyond that little interest.

First, it solves the "why hold it" problem.

For the past six years, the promotion of the digital yuan relied on "subsidies for trial use." Giving red envelopes, organizing activities, offering coupons. Once used, it was forgotten because holding it had no benefits—sitting there earning no interest is worse than keeping it in WeChat Pay (although it also earns no interest, at least it’s convenient to use).

Now it’s different. Even with just 0.05%, it means "keeping it here is better than keeping it in your pocket." Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, said at this year’s Bund Conference: "Letting ordinary people and businesses hold idle assets that do not earn interest will lose the time value of money."

Money should inherently have time value; not earning interest is an inhumane design.

Second, banks finally have motivation. The M1 positioning means banks can do business with digital yuan. When users deposit money, banks can lend, invest, and earn interest spreads. With rights and responsibilities aligned, their enthusiasm naturally increases. This point is the most critical underlying logic of this reform.

Third, it is the first major economy in the world to pay interest on CBDC. More than 130 countries and regions are exploring central bank digital currencies (CBDC), but the vast majority are still positioned as "digital cash." This is because paying interest on CBDC is theoretically controversial (could it lead to bank runs?) and operationally risky.

China has taken this step, providing a new reference for the evolution of global CBDC.

Predefined Currency Usage Rules

Beyond the layer of "interest calculation," what is more worth exploring is the imaginative space behind the digital yuan. Traditional deposits are just a number, lying in an account, static.

The digital yuan is a string of code that can be assigned rules. The central bank's white paper states: "Programmability is achieved through loading smart contracts that do not affect the monetary function."

In simpler terms: the digital yuan can also be "conditional money."

In past pilots, digital yuan red envelopes had a validity period; they expired if not used, which is a basic application of programmability.

The future application space has vast imaginative potential. Government-issued consumption vouchers can only be used in specific industries, automatically reclaimed after expiration, and are fully traceable; wages issued by companies can be set to automatically transfer a certain percentage to pension accounts; cross-border trade payments can be automatically settled after delivery conditions are met, without manual reconciliation; targeted poverty alleviation funds can only be used to purchase production materials, not for gambling or high consumption.

The common point of these scenarios is that the rules for using money can be predefined and then automatically executed.

In the past, the central bank controlled the economy through "aggregate tools"—lowering interest rates, reducing reserve requirements, and injecting liquidity. The problem is that the transmission chain is too long; money comes out of the central bank, passes through banks and enterprises, and finally reaches the real economy, with huge losses in between and difficulty in targeting. Economists refer to this as "the lag and leakage of monetary policy transmission."

The programmability of the digital yuan theoretically allows monetary policy to be "precisely dripped." The central bank can stipulate: this money can only flow to small and micro enterprises, can only be used for green investments, and must be spent within six months.

This is something traditional currency cannot achieve.

Of course, every coin has two sides. If money can be programmed, who decides the rules? Will programmability become another form of control? Will consumer freedom be restricted? These questions have no standard answers, but they will undoubtedly become the core controversies in the next phase.

Domestically, it’s one game; cross-border, it’s another.

The Multilateral Central Bank Digital Currency Bridge (mBridge) has entered the MVP stage. This is a project jointly developed by the Digital Currency Research Institute of the People's Bank of China, the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the UAE, and the Bank for International Settlements. In 2024, the Saudi Central Bank will also join.

As of November 2025, mBridge has processed a total of 4,047 cross-border payments, with a transaction amount equivalent to 387.2 billion yuan, of which digital yuan accounts for 95.3%. Each settlement takes 6 to 9 seconds, and costs are over 50% lower than traditional cross-border payments.

These figures indicate that the technology has been successfully implemented. However, the scale is still small, and it is far from becoming a mainstream cross-border payment channel.

The core issues of cross-border payments are trust and rules. The dollar can become the global reserve currency not only because of the size of the U.S. economy but also due to the historical legacy of the Bretton Woods system, the network effects of the SWIFT system, and the depth and liquidity of the U.S. financial market.

For the digital yuan to make an impact in the cross-border arena, technology is just the entry ticket; there is a long list of geopolitical equations to solve afterward.

Epilogue

Interest calculation addresses the question of "whether to hold." But holding is just the first step; there are more challenging hurdles ahead: whether to use it? Will merchants accept it? Can a spontaneous network effect be formed?

The leverage effect of 0.05% interest is limited.

Looking back to 2014, Yu'ebao relied on a 19-fold interest rate difference, awakening the financial awareness of hundreds of millions overnight, forcing banks to reform and pushing for interest rate marketization. That was a dimensional strike.

The digital yuan currently has almost no interest advantage and cannot play the interest rate difference card. It needs to find other breakthroughs, better product experiences, richer usage scenarios, or stronger policy-driven support.

Ultimately, money is meant to be used, not designed.

In 2014, Yu'ebao told the Chinese people with a 19-fold interest rate difference: your money should have time value.

In 2026, the digital yuan paying interest is a continuation of this logic: giving the money in digital wallets a reason to be "worth keeping there" for the first time.

But a deeper change is: when money becomes digital and programmable, the time value can be set, allocated, and even controlled more precisely.

Who sets the rules? How is it allocated? Who benefits? Who bears the risk? These questions may be far more important than "whether to pay interest."

The digital yuan has just received its ticket to entry. The real competition has only just begun.