Beginning January 1st, users of China's digital yuan will have the opportunity to earn interest on their holdings, marking a significant shift in the treatment of this central bank digital currency (CBDC). This decision aligns the digital yuan with traditional bank deposits, which have historically been the only deposits to earn interest in China.
Despite its inception in 2014, the digital yuan has faced challenges in achieving widespread adoption and competes with established digital payment platforms like Alipay and WeChat. Current interest rates from major banks hover around a mere 0.05%, raising questions about the potential effectiveness of this new measure to enhance user engagement with the digital currency. In contrast, global crypto exchanges such as Binance and Kraken offer rewards exceeding 6% on deposits in stablecoins like USD Coin (USDC) and Tether (USDT).
Furthermore, the digital yuan remains off public blockchain networks, limiting its integration with decentralized finance (DeFi) options. The Chinese government continues to prioritize the development of the digital yuan within its five-year economic framework, with recent initiatives including the establishment of an operations center in Shanghai.