The retail digital yuan is no longer a central bank digital currency. China’s version 2.0 upgrade, launched 1 January 2026, has transformed it into a commercial bank deposit solution where retail balances become liabilities of the holding institution – whether a bank or non-bank payment provider. Banks can now use these deposits for fractional reserve banking with balances covered by deposit insurance, while non-bank providers must hold full reserves. The fundamental pivot, positions the approach as a more financially stable alternative to stablecoins.
The major state-owned banks and others have issued announcements stating they now pay interest on digital RMB deposits at the same rate as existing demand deposits. In the case of many banks that rate is just 0.05%.
In an article published in the Financial News, the deputy governor of the People’s Bank of China, Lu Lei, outlined that this approach addresses the risks of stablecoins. That’s partly because stablecoins could result in outflows from banks, but also because it avoids the volatility in the valuation of stablecoin backing assets (such as Treasury bonds) and supports full integration with current systems. Ledger Insights anticipated this direction following remarks by Mu Changchun the leader of the Digital Currency Research Institute at the People’s Bank of China in September 2025, though the latest announcement provides the first official confirmation of the transformation.
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