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It’s a Tuesday!
Hello, Curse and Coffee friends,
Today, we explore an interest-bearing digital Yuan.
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Coffee at the ready…
The Big Sip
The take: China just turned its central bank digital currency into a savings product — the first country to do so — because pilot programmes couldn't break Alipay and WeChat Pay's grip on the market.
What happened: Starting January 1, commercial banks will pay interest on digital yuan wallet balances, transforming the e-CNY from digital cash into deposit money. Deputy Governor Lu Lei announced the overhaul in the state-affiliated Financial News on Monday.
Why it matters: This reclassifies the digital yuan from M0 (cash in circulation) to M1 (cash plus demand deposits). A fundamental redesign. Digital yuan balances will now be covered by China's deposit insurance system, giving users the same protections as traditional bank accounts.
What to watch: Demand deposit rates at China's largest banks sit at 0.05%. If digital yuan wallets offer even marginally better rates, Beijing has a lever to pull users away from private platforms. The PBOC hasn't announced specific rates yet.
A decade of pilots couldn't crack the duopoly. Turns out the secret weapon is a savings account.
Sponsor Break
Before we slurp into today’s brew…
Here are some wordies from today’s sponsor.
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Here’s Your Brew
The problem was the incentives.
Alipay launched in 2004. WeChat Pay followed in 2011.
By the time China's digital yuan pilots began in 2019, the duopoly had already wired itself into daily life (transport, utilities, e-commerce, person-to-person transfers).
The e-CNY offered the same functionality with none of the ecosystem lock-in.
So people opened wallets and didn't use them. 230 million personal wallets. 3.48 billion transactions. Sounds impressive until you realise Alipay alone processes over $20 trillion annually.
Interest changes the calculus.
Cash doesn't pay you to hold it. Deposits do. By reclassifying the digital yuan as deposit money, Beijing created something neither Alipay nor WeChat Pay can offer: a state-backed savings product with deposit insurance, accessible through the same app you use to buy coffee.
The cross-border play matters too.
China's action plan includes establishing an international digital yuan operations centre in Shanghai, connecting to mBridge — a multi-CBDC platform that's processed 387 billion yuan in cross-border transactions, with digital yuan accounting for 95% of the volume.
Two Sides, One Mug
→ Pro-e-CNY: Interest payments and deposit insurance give consumers a reason to hold digital yuan instead of just spending it. Legal tender status forces merchant acceptance. This is how you break a duopoly.
→ Anti-e-CNY: State-backed digital currency with complete transaction visibility is a surveillance tool dressed as financial innovation. The "adoption problem" might be users voting with their wallets.
→ Our read: Beijing is betting that convenience and yield will outweigh privacy concerns. Given how quickly Chinese consumers adopted Alipay and WeChat Pay — neither of which is exactly privacy-first — that's probably a safe bet.
Receipt of the Day
Source: Atlantic Council CBDC Tracker, 2025
"137 countries and currency unions, representing 98% of global GDP, are exploring a CBDC. Currently, 49 countries are conducting pilots. Digital yuan (e-CNY) is still the largest CBDC pilot in the world."
Why it matters: China isn't just the first to offer interest on a CBDC. It's first by a wide margin. The US doesn't have a digital dollar. Europe's digital euro is still in its pilot phase. By the time Western economies launch, China will have years of data on what works.
Spit Take
"Ten years. $2.37 trillion. Still losing to two apps."
Your Coffee Break Links (and water cooler chatter)
📎 The full PBOC announcement: CoinDesk's breakdown of the January 1 framework, including how digital yuan balances will be treated under reserve requirements and deposit insurance. The technical receipts. (CoinDesk)
📎 Why the BIS walked away from mBridge: The cross-border CBDC platform raised concerns about sanctions evasion after Putin floated a "BRICS Bridge" using similar technology. BIS called it a "graduation." Critics called it a retreat. (CryptoSlate)
📎 The Alipay/WeChat Pay duopoly explained: How two apps captured 90% of a $43 trillion market — and why the digital yuan has struggled to compete. (Daxue Consulting)
Join your team of caffeinated skeptics.
Opinionated world news that respects your time.
One bold take, the best counter, and the receipt(s) that prove it (all in sixish minutes).
Mugshot Poll 📊
What's the real reason China is paying interest on the digital yuan?
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