The first large-scale adoption of a "yield-bearing stablecoin" was in China

Original Title: "China is the First to Adopt a "Yield-Bearing Stablecoin" on a Large Scale"

Original Author: Lin Wanwan, DoinG Char

On January 15, 2014, Yu'ebao's 7-day annualized yield surged to 6.763%. On the same day, the interest rate for bank demand deposits was 0.35%.

19 times.

This number was like a heavy blow, awakening hundreds of millions of depositors in China: it turns out that if I keep my money in a bank demand deposit account, my interest is eaten up 19 times. It's not that there is no interest, it's that the interest is taken by someone else.

What is the essence of Yu'ebao? It simply pools depositors' money and deposits it into a bank's structured deposit account: a world free from interest rate controls, and then distributes the returns to depositors.

Technologically uninnovative, but it tore open an invisible gap in China's financial system: for the first time, ordinary people realized that their money has a time value, and this value should belong to them.

Eleven years later, on December 29, 2025, the People's Bank of China announced: starting from January 1, 2026, the balance in digital RMB wallets will earn interest.

Similarly, "making digital money work for you," but this time, the player has changed to the central bank.

And interest calculation is a ticket, proving that digital RMB has finally come to terms with the idea: just being "right" is not enough; you have to give users a reason to choose you.

The Paradox of "Theoretical Correctness"

Digital RMB pilot testing began in 2019. After six years, the on-paper metrics look impressive: 230 million individual wallets, with a total transaction volume of 34.8 billion transactions and an amount of 167 trillion RMB. But ask around you, how many people actually use it in their daily lives?

The answer is most likely: received a red envelope, tried it once, and then nothing after that.

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

The central bank's initial positioning of digital RMB was as a "digital substitute for cash." Cash is M0, the currency in circulation, without interest. So, digital RMB also does not earn interest. The logical chain is perfectly self-consistent. However, the issue is that the usage scenarios for cash are disappearing.

Prior to 2019, China's mobile payment penetration rate had already exceeded 85%. Open WeChat or Alipay, scan, and complete the transaction in a fraction of a second. Asking users to switch to a new tool for the sake of a "dual offline payment" (able to pay without the internet) feature incurs too high a switching cost. How many scenarios in daily life require immediate payment without internet access?

Even more deadly, the M0 positioning has brought a structural problem: banks have no incentive to promote.

The concept of a 100% reserve requirement is that if a user deposits 100 units of digital RMB into their wallet, the bank must deposit 100 units as a reserve requirement with the central bank, and not a single unit can be touched. The bank bears all the costs of system development, network operation, and user acquisition, but cannot earn a single penny from these 100 units. I bear the cost, but there is no profit. No matter how you calculate this, it doesn't make sense.

Therefore, after six years of piloting the digital RMB, despite numerous lively scenes, countless red envelopes, and countless activities, a spontaneous network effect has not been formed. Users have no incentive to hold, and banks have no incentive to promote. Neither side is moving, so the wheel cannot turn.

What Has Changed This Time: From M0 to M1

On December 29, 2025, the central bank issued a very long document: "Action Plan for Further Strengthening the Management Service System of the Digital RMB and the Construction of Related Financial Infrastructure." The document is long, but the core change is only one sentence: the digital RMB has changed from "digital cash" to "digital deposit."

The document mentions three key changes:

First, interest calculation. Starting on January 1, 2026, the balance in the digital RMB wallet will earn interest at the current deposit rate. The current deposit rate is around 0.05%, so having 10,000 units in the wallet for a year will earn you 5 units. The interest is not much, but the change from 0 to 0.05% is substantial.

Second, bank liability. Previously, the digital RMB was a liability of the central bank, just like the paper money in your pocket. Now it has become a liability of the bank. The bank can include this money in its balance sheet, use it for lending, investment, and profit from it. Of course, reserve requirements still apply, but no longer at 100%.

Third, deposit insurance. The digital RMB is now covered by deposit insurance. Your money is backed by the full faith and credit of the government, just like regular deposits.

As Deputy Governor of the central bank, Lu Lei, put it: the digital RMB has "transitioned from version 1.0 of cash-type to version 2.0 of deposit-type."

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

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

First, it solves the "why hold" problem.

Over the past six years, the promotion of the digital RMB has relied on "subsidies for trial and use." Distributing red envelopes, conducting activities, providing coupons. Once used, it is forgotten because there is no benefit to holding it—no interest is earned by keeping it there, and it is not as convenient to use as WeChat balance (even though it also does not earn interest, at least it is easy to spend).

Things are different now. Even if it's only 0.05%, it means "it's better to have it here than in your pocket." Mu Changchun, Director of the People's Bank of China Digital Currency Institute, said at this year's Bund Summit, "Allowing the general public and enterprises to hold idle non-interest-bearing assets will lose the time value of money."

Currency inherently should have a time value, and non-interest-bearing is a design that goes against human nature.

Second, banks finally have an incentive. The M1 positioning means that banks can do business with the digital renminbi. When users deposit their money, banks can lend it, invest it, and earn the interest rate differential. With rights and responsibilities being equal, motivation naturally increases. This point is the most critical underlying logic of this reform.

Third, the world's first major economy to offer interest on CBDC. More than 130 countries and regions globally are exploring central bank digital currencies (CBDCs), but the vast majority are still in the realm of "digital cash." Because providing interest on CBDCs is theoretically controversial (could it lead to a bank run?) and risky in practice.

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

Pre-Set Rules for Currency Use

More than just "interest," the digital renminbi's worth delves into the realm of imagination. Traditional deposits are a number lying in an account, static.

The digital renminbi is a string of code that can be endowed with rules. As stated in the central bank's whitepaper, "Programmability is achieved through loading smart contracts that do not affect currency functions."

In other words, the digital renminbi can also be "conditional money."

In past trials, digital renminbi red packets had expiration dates and became void after expiration. This is a basic application of programmability.

The future application space is vast in imagination. Government-issued consumption vouchers can only be used in specific industries, expire automatically, and are fully traceable; corporate salaries can be set to automatically transfer a certain percentage to a pension account; cross-border trade payments can settle automatically after meeting delivery conditions, without the need for manual reconciliation; targeted poverty alleviation funds can only be used to purchase production materials, not for gambling or high consumption.

The commonality among these scenarios is that currency usage rules can be pre-set and then automatically executed.

In the past, central bank regulation of the economy relied on "quantity tools" - interest rate adjustments, reserve requirement changes, and liquidity injections. The problem is that the transmission chain is too long. When money comes out of the central bank, it passes through banks and enterprises, and finally reaches the real economy, with huge losses in between, and it's difficult to target. Economists call this the "time lag and leakage of monetary policy transmission."

The programmability of the digital RMB theoretically allows for a "precision drip" of monetary policy. The central bank can specify: this money can only flow to small and micro enterprises, can only be used for green investment, must be spent within 6 months.

This is something traditional currency cannot achieve.

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

Domestically it's one game, internationally it's another.

The Multilateral Central Bank Digital Currency Bridge (mBridge) has entered the MVP stage. This is a project jointly carried out by the China Central Bank Digital Currency Institute, 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 also joined.

As of November 2025, mBridge has processed a total of 4047 cross-border payments, with a transaction amount equivalent to 387.2 billion yuan, of which digital RMB accounts for 95.3%. Settlement per transaction takes 6 to 9 seconds, with costs over 50% lower than traditional cross-border payments.

These numbers demonstrate that the technology is already working. However, the scale is still small, and it is far from becoming a mainstream cross-border payment channel.

The core issue of cross-border payments is trust and rules. The U.S. dollar's status as a global reserve currency relies not only on the size of the U.S. economy but also on the historical legacy of the Bretton Woods system, the network effect of the SWIFT system, and the depth and liquidity of the U.S. financial markets.

If the digital RMB aims to make a mark in the cross-border field, technology is just the first step, with a long string of geopolitical equations to solve.

Epilogue

Interest calculation solves the problem of "willingness to hold." But holding is just the first step. There are more challenging hurdles ahead: willingness to spend? Will merchants accept it? Can a spontaneous network effect be formed?

A 0.05% interest rate has limited leverage.

Recall 2014, Yu'E Bao relied on a 19x interest rate differential, overnight awakening financial awareness in hundreds of millions of people, driving bank reforms and pushing for interest rate liberalization. That was a low-level attack.

The digital RMB currently has little advantage in interest rates and cannot play the interest rate differential card. It needs to find another breakthrough, such as a better product experience, richer usage scenarios, or stronger policy-driven initiatives.

At the end of the day, money is spent, not designed.

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

In 2026, the digital RMB will earn interest, continuing this logic: the money in your digital wallet now has a reason to be "worth keeping there" for the first time.

But the deeper change is this: when money becomes digital and programmable, the concept of time value can be more finely set, allocated, and even controlled.

Who sets it? How is it distributed? Who benefits? Who bears the risk? These questions may be much more important than the decision of whether or not to earn interest.

The digital RMB has just received its ticket to the game. The real competition is just beginning.

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