What does it mean that digital RMB balances earn interest?
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What does it mean that digital RMB balances earn interest?
If interest is paid on the balance of "real-name digital RMB wallets," it would no longer be in the form of "pure M0 digital cash," but would instead enter the balance sheet of a bank.
Navigating Web3 tides with focused insightsAuthor: MaoSphere
On December 31, 2025, six major state-owned banks jointly announced that starting January 1, 2026, they would pay interest on balances in customers' real-name digital RMB wallets held at these institutions, using the posted interest rates for current deposits. The rules for interest calculation and settlement will be consistent with those of current deposits. This means that funds in certain digital RMB wallets are transitioning from an "interest-free cash (M0) form" to a "bank liability form capable of earning interest—akin to deposit (M1)."
Many people’s immediate reaction is: “Isn’t digital RMB just the digitization of cash? Cash never earns interest—how can it now?” Behind this question lies a significant shift: when funds are managed by banks as deposits and earn interest, they cease—in accounting and legal terms—to be merely a “digital form of cash” and instead become part of bank liabilities, classified as deposits. This does not mean the fundamental positioning of digital RMB has changed, but rather that under specific wallet types, operating institutions, and contractual terms, a path toward “deposit-like treatment” has emerged. Understanding this requires examining several dimensions: the legal status of digital RMB, its operational design, wallet tiering, monetary statistics classification, bank balance sheet relationships, and deposit insurance systems.
In the White Paper on the Development Progress of China's Digital Currency (July 2021), the People’s Bank of China (PBOC) clearly defined the foundational principles of digital RMB: issued by the central bank, implemented through a two-tier operating system, emphasizing controllable anonymity, and most importantly, “maintaining an M0定位 and not paying interest.” The intent behind this principle is straightforward: digital RMB is a retail central bank digital currency (CBDC), primarily designed to meet domestic retail payment needs, preserve financial system stability, and avoid disruptive impacts on banks’ liability structures. From this baseline, if interest is paid on balances in real-name digital RMB wallets, such funds no longer represent pure “digital M0 cash,” but enter the bank’s balance sheet as customer deposit liabilities.
To understand this change, several legal and policy documents offer important perspectives.
- First, the Law of the People's Republic of China on the People's Bank of China (Revised Draft for Public Comment) (released for consultation in October 2020), which explicitly states that RMB includes both physical and digital forms, and that digital RMB constitutes legal tender.
- Second, the Regulations on Deposit Insurance (State Council Order No. 660, effective May 1, 2015), which defines the scope of deposit insurance coverage and sets the maximum payout limit: up to 500,000 yuan for the combined principal and interest across all insured deposit accounts held by the same depositor at the same insured institution. This regulation serves as the key criterion for determining which funds qualify for deposit insurance protection. Cash is not considered a deposit and thus falls outside deposit insurance coverage; bank deposits (current, time, etc.) are covered. Whether any portion of digital RMB qualifies for deposit insurance depends on how it is treated on the bank side. If a bank pays interest on certain real-name wallet balances and records them on its balance sheet as deposits, then those funds should fall under the logic of deposit insurance protection. If wallet balances remain managed as digital cash without interest payments, they retain their status as legal-tender cash, with security derived from the legal standing and credibility of the central bank.
Understanding the macroeconomic implications of “interest-bearing balances” requires familiarity with three levels of monetary aggregates. M0 refers to circulating cash—the category into which digital RMB was originally classified per the white paper. M1, or narrow money, typically equals M0 plus corporate demand deposits, reflecting “immediately spendable funds” available to enterprises. In China’s statistical framework, adjustments related to client reserve funds held by non-bank payment institutions have also influenced M1 composition. M2, broad money, builds upon M1 by adding time deposits and other quasi-money instruments, serving as a broader indicator of liquidity and credit creation within the banking system. The transition from “cash (M0)” to “demand deposits (M1)” represents a qualitative shift: cash is not counted as bank deposits and carries no obligation for banks to pay interest; demand deposits, however, are bank liabilities requiring interest payments and enabling banks to deploy funds via loans or securities investments. Therefore, if certain real-name wallet balances begin earning interest and are recorded as deposits, they move beyond being mere digital cash and enter the domain of bank balance sheet management and credit creation.
A bank’s balance sheet acts as a mirror. When customers deposit money, the bank records a “deposit liability”; on the asset side, it extends loans, purchases government bonds, holds required reserves, conducts interbank placements, or makes investments—earning income through interest spreads and fee-based services. The mechanism of credit creation is relatively simple: assuming a 10% required reserve ratio, under idealized conditions (ignoring real-world constraints like cash leakage, excess reserves, or weak loan demand), the theoretical deposit multiplier is approximately 1 divided by the reserve ratio—i.e., 10. In reality, actual money multipliers are shaped by loan demand, risk appetite, capital adequacy ratios, regulatory requirements, and economic cycles. Placing “interest-bearing balances” within this framework suggests they could provide banks with additional, relatively low-cost and stable sources of liabilities, thereby enhancing their capacity to deploy assets. However, whether this potential translates into actual lending and investment ultimately depends on macroeconomic conditions, regulatory policies, and market demand.
Wallet tiering and identity verification strength serve as the “measuring stick” for digital RMB at the micro level. In plain terms:
Class I Wallet (High Identity Verification)
- Verification Requirements: Requires in-person face-to-face verification at a bank branch, including identity confirmation and binding to the user’s own bank account—the highest level of real-name authentication.
- Transaction Limits: No caps on transaction amounts or frequency—this is the only wallet type without limits.
- Use Cases: Suitable for large-value transactions by enterprises or individuals with high-frequency, high-amount transfer/payment needs—ideal where unrestricted limits are essential.
Class II Wallet (Strong Identity Verification)
- Verification Requirements: Can be opened remotely online, requiring binding to the user’s bank account and completing strong identity verification such as facial recognition.
- Transaction Limits: Daily cumulative transaction cap is relatively high (exact figures vary by operator, generally far exceeding Class III and IV)—sufficient for most personal daily payment needs.
- Use Cases: Ideal for personal consumption, transfers—balancing convenience and sufficient transaction limits, making it one of the mainstream choices for individual users.
Class III Wallet (Basic Identity Verification)
- Verification Requirements: Verified via mobile phone number and ID information, without requiring a linked bank account—moderate real-name requirement.
- Transaction Limits: Lower daily transaction and wallet balance caps than Class II—designed for small-value retail payments.
- Use Cases: Suited for convenience store purchases, public transit, food delivery—typical small-value, high-frequency retail scenarios.
Class IV Wallet (Low Identity Verification / Anonymous)
- Verification Requirements: Registration requires only a mobile number, without submission of ID details—lowest real-name level. Supports registration with foreign mobile numbers and linking foreign cards—known as the “tourist wallet.”
- Transaction Limits: Lowest caps on daily transactions and wallet balances—limited to small payments.
- Use Cases: Designed for short-term foreign visitors’ small purchases and domestic users seeking anonymous small payments.
Specific limits (per transaction, daily total, balance ceiling), documentation requirements, and functional availability may vary across operators and pilot regions. Actual standards follow the guidelines set by individual operators and regulators. Understanding these tiers helps clarify the practical boundaries: generally, the stronger the real-name verification, the more likely the wallet is deeply integrated with bank accounts and thus easier to consolidate onto the bank’s balance sheet as deposits; weaker real-name wallets resemble “digital cash cards,” prioritizing convenience and privacy protection.
Balancing privacy and compliance remains a core theme in the design of digital RMB. The concept of “controllable anonymity” can be summarized as follows: protecting user privacy as much as possible in small-value, high-frequency everyday transactions, while enforcing stricter KYC and transaction monitoring when thresholds for amount, frequency, or specific use cases are reached, in line with anti-money laundering (AML), counter-terrorism financing (CTF), and anti-tax evasion regulations. Supporting laws such as the Anti-Money Laundering Law, Personal Information Protection Law, Data Security Law, and Cybersecurity Law provide the legal framework for privacy and compliance in payment systems. As a digital form of legal tender, digital RMB must ensure payment accessibility and convenience while safeguarding against financial risks—a combination of “stability and speed” enabled by coordinated institutional and technological efforts.
Many wonder whether this “interest payment” alters the foundational “digitization of cash” nature of digital RMB. A more accurate interpretation is: the core positioning of digital RMB remains unchanged—it is still a legal digital currency in the M0 category. What has changed operationally is that specific wallet balances may now undergo “deposit-like treatment” at banks—a model of “layered coexistence.” The benefits include a user experience closer to traditional bank accounts, greater incentive for fund retention, and for banks, access to low-cost, stable liabilities that improve asset deployment capabilities. At the macro level, monetary statistics will adjust accordingly, with some funds previously classified as M0 now reclassified into M1. This does not imply a full-scale transformation of digital RMB into deposits, but rather the emergence of deposit relationships within specific wallet types and contexts. Hence, boundaries and implementation details are crucial.
Some observers link this development to RMB internationalization. Indeed, digital RMB improves payment experiences for foreign visitors: tourist wallets support foreign mobile numbers and foreign card linking, eliminating the need to open local accounts—streamlining payments under compliant frameworks. For example:
Wallet Opening (Class IV, Tourist-Specific)
- Access Point: Via the Digital RMB app or bank apps, selecting “Registration for Foreigners / Tourist Wallet,” entering a foreign mobile number to receive a verification code—basic verification suffices to open the wallet, no domestic bank account needed.
- Identity Strength: Mobile number verification only—weak real-name authentication, compliant with PBOC Class IV wallet rules, with very low daily transaction and balance limits (typically several thousand yuan daily, balance capped around 10,000 yuan, depending on the bank).
Foreign Card Top-Up and Funding Sources
- Primary Method: Link Visa, Mastercard, or other foreign credit/debit cards, initiate top-up via bank or Digital RMB app, supported by international card payment gateways; some banks allow redirection from overseas mobile banking apps for authorization.
- Alternative Option: Hard wallet exchange kiosks deployed at airports, high-speed rail stations, etc., allowing direct exchange of foreign cards for digital RMB hardware wallets (e.g., ICBC, CCB).
Payment and Usage
- Online: Supported on e-commerce, food delivery platforms for digital RMB payments; offline: QR code scanning or NFC “tap-to-pay,” covering retail, transportation, dining, and other high-frequency scenarios.
- Offline Payments: Supports dual-offline payments, suitable for network-limited environments (e.g., scenic areas, subways).
Deactivation and Refund
- Remote deactivation via app; balance can be refunded to the original foreign card (subject to card issuer rules) or processed as cash refund at designated branches (supported by some banks).
At the same time, fees and limits must be clearly understood: charging rules for transfers, withdrawals, cross-bank or cross-wallet operations, and detailed quota management may differ among operators and banks. Higher-tier wallets often offer greater limits and functionality, but come with heavier KYC and compliance obligations. A basic recommendation: carefully read the service agreements and official announcements from your wallet provider and bank to understand your wallet type, the nature of your funds, and your rights and responsibilities—especially confirming whether interest is paid, whether funds are treated as deposits, and whether deposit insurance applies.
The journey of digital RMB has been one of “prudent and steady advancement.” It began around 2014 when the PBOC established a research team for legal digital currency, focusing on overall architecture, key technologies, application ecosystems, and policy frameworks. Between 2020 and 2021, pilot programs were launched in Shenzhen, Suzhou, Xiong’an New Area, Chengdu, and during the Beijing Winter Olympics, later expanding to more cities and provinces—evolving from the initial “10+1” structure to broader coverage. Since 2022, ecosystem development has accelerated, extending applications beyond retail to corporate uses: salary disbursement, tax payments, government subsidies, supply chain finance. Support for inbound tourists has also improved, with tourist wallets enabling foreign mobile registration and foreign card linkage, significantly easing past difficulties with payment access in China. Meanwhile, the PBOC has participated in Project mBridge—the Multilateral Central Bank Digital Currency Bridge—with the BIS Innovation Hub (Hong Kong) and other central banks, piloting and validating technologies for efficient, compliant, and secure cross-border payments. As economic cycles, monetary policy, and fintech continue to evolve together, digital RMB will further optimize its management systems, infrastructure, and cross-border applications. The public should focus on understanding different wallet types, verifying interest rates and fees, prioritizing privacy and security, and respecting compliance and risk control boundaries. On this uniquely Chinese path to digital currency, “authenticity, reliability, prudence, and orderliness” remain paramount.
The current market practice of “paying interest on real-name wallet balances” resembles an operational-level differentiated arrangement—allowing banks to manage certain wallet balances as deposits and pay interest—rather than a fundamental overturning of digital RMB’s core positioning. It may alter users’ fund-holding behaviors, influence banks’ liability structures and asset deployment capacities, and manifest in shifts in monetary statistics. Whether deposit insurance applies, how interest is calculated and settled, fee and limit structures, and privacy-compliance boundaries should all be determined based on official documents issued by operating institutions and regulators. For the long-term trajectory of digital RMB, the guiding principles remain: prudent advancement, authenticity, reliability, and accuracy. As members of the public, we must understand wallet classifications, identify the nature of our funds, respect compliance and risk controls, make rational assessments of returns and costs, and strive to achieve better balance between inclusiveness, resilience, privacy, and security through digital RMB.
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