Overview of the Upgrade

Recently, a systematic upgrade concerning the digital renminbi has entered the countdown to implementation. The People's Bank of China, in collaboration with banking operating institutions and non-bank payment institutions, will deeply restructure the existing digital renminbi system starting from January 1, 2026. From the disclosed information, there are three core actions of widespread concern in this upgrade: first, the digital renminbi wallet balance will officially introduce an interest calculation mechanism; second, the management of digital renminbi by commercial banks will shift from "off-balance-sheet pure payment tool" to "on-balance-sheet partial reserve" model; third, non-bank payment institutions will continue to execute the 100% margin management requirement for digital renminbi, maintaining the existing reserve fund regulatory framework. Various market perspectives describe this adjustment as a "key milestone in the transition of digital renminbi from the pilot phase to the central bank's main system," indicating that its role is evolving from a single payment tool to a comprehensive financial vehicle with deposit-like functions, which involves a systematic reorganization of the monetary system structure, the liability side of financial institutions, and the rules of the payment industry.

Interest Calculation and Security

According to Caixin, a major focus of this upgrade is that the digital renminbi wallet balance will officially "earn interest." The interest calculation mechanism will be incorporated into the current "self-regulatory mechanism for deposit interest rates," with banks forming specific interest rate levels under industry self-regulation based on guidance from the People's Bank of China. This means that the interest pricing of digital renminbi will be institutionally linked to the existing renminbi deposit interest rates. Compared to traditional demand and time deposits, the interest calculation for digital renminbi is more likely to reflect differentiated management based on the duration of fund retention and account functionality, rather than simply replicating fixed quotes of 0.x% for demand deposits and several % for time deposits. Its interest rate sensitivity will intertwine with factors such as payment convenience and wallet form, presenting a different pricing logic from the traditional "one deposit, one receipt." Similarly, according to Caixin, the balance of digital renminbi will be included in the coverage of deposit insurance, significantly enhancing the public's sense of security in holding digital renminbi under the current maximum guarantee limit of 500,000 yuan. This further reduces the psychological cost of migrating funds from demand deposits and third-party payment balances to digital renminbi, potentially changing residents' intuitive ranking of "which tool is safer."

On-Balance-Sheet and Reserves

At the asset-liability structure level, the shift of banking institutions to "on-balance-sheet partial reserve management" for digital renminbi is another key watershed in this upgrade. During the pilot phase, digital renminbi was more viewed as a "digital payment tool for central bank liabilities," managed by operating institutions with full reserves in an off-balance-sheet manner, with banks primarily responsible for technology and channel duties. After the upgrade, digital renminbi will occupy a position on the bank's balance sheet. The partial reserve model means that banks can use related funds for loan allocation or other assets while retaining a certain level of high liquidity reserves. Digital renminbi and traditional deposits will begin to form substantial linkages through the asset side. From the perspective of monetary theory, the partial reserve system will naturally amplify the money multiplier, creating a new coupling relationship with the supply of broad money (M2) through the transmission chain of "digital renminbi—on-balance-sheet liabilities—credit issuance." Although there is currently no authoritative disclosure regarding the reserve ratio, the market cannot calculate the specific changes in the multiplier based on this. In stark contrast, non-bank payment institutions are explicitly required to continue executing 100% margin management, meaning that their digital renminbi funds must be fully deposited with designated institutions and cannot create credit expansion. This arrangement has been evaluated by Caixin as "continuing the existing reserve fund regulatory logic," which, while strengthening fund security and preventing misappropriation risks, also institutionally suppresses the space for non-bank institutions in fund retention and interest margin operations, consolidating their industry positioning as "payment channels and scenario interfaces."

The Game of Bank Deposits

With the introduction of interest calculation and deposit insurance, the "deposit-like attributes" game between digital renminbi and commercial bank deposits has been significantly amplified. From a functional positioning perspective, traditional deposits primarily focus on wealth preservation and fund management, with payment functions typically relying on cards, online banking, and third-party tools. Digital renminbi, on the other hand, directly realizes "programmable, traceable, instant payment" at the monetary form level, possessing both payment settlement and value storage dual functions. In terms of interest attributes, digital renminbi will earn interest according to the self-regulatory mechanism for deposit interest rates, making its interest rate formation subject to the same institutional constraints. However, considering the wallet form and usage scenarios, its yield curve and liquidity constraints may differ from ordinary demand and notice deposits. In terms of risk-bearing and regulatory framework, digital renminbi, as a central bank liability, inherently possesses the highest credit, and being included in the deposit insurance system means that, for ordinary users, its safety is equivalent to or even perceived as higher than that of general bank deposits. For commercial banks, this change may bring two pressures on the deposit side: first, some demand deposits and settlement deposits may migrate to digital renminbi, leading to "disintermediation" on the liability side, forcing banks to respond to fund diversion by enhancing service added value and optimizing product structure; second, to maintain liability stability, banks need to invest more effort in interest rate pricing and innovation of self-liability products to balance liability costs and competitiveness. The enhancement of the "deposit-like attributes" of digital renminbi may also prompt some residents to concentrate funds originally scattered across bank card balances and payment platform wallets into digital renminbi wallets, changing the allocation ratio of household assets among cash, demand deposits, and short-term financial management, thereby driving banks to make medium- to long-term adjustments in asset-liability management, liquidity reserves, and internal transfer pricing.

Regulation and Infrastructure

According to a single source of information, the People's Bank of China plans to implement the "Action Plan for Further Strengthening the Management Service System of Digital Renminbi and Related Financial Infrastructure Construction" simultaneously with this upgrade. This document is positioned as a "blueprint" for the medium- to long-term development and regulatory coordination of digital renminbi, focusing on the overall design of the operating system, technical standards, clearing and settlement infrastructure, and risk prevention mechanisms, aiming to transition digital renminbi from a pilot project to "permanent infrastructure." Similarly, according to a single source report, Lu Lei, Deputy Governor of the People's Bank of China, has confirmed the implementation timeline of the aforementioned upgrade and related plans in an article for the Financial Times, providing an official statement on the role of digital renminbi in monetary policy transmission and payment system optimization. This public statement has been interpreted by the market as a clear signal of the regulatory authorities' promotion rhythm and policy orientation. In the context of the parallel implementation of the interest calculation mechanism and partial reserves, regulatory authorities need to redefine the "red lines" along three dimensions: first, payment compliance, ensuring that the use of digital renminbi in various scenarios is not abused as a tool to evade regulation and payment settlement rules; second, anti-money laundering and anti-terrorist financing, leveraging traceability features to strengthen monitoring of large and suspicious transactions while preventing privacy and data misuse controversies arising from "excessive visibility"; third, financial stability, in light of new changes in the money multiplier, institutional liability structure, and fund flow, timely suppressing potential pro-cyclical amplification effects through macro-prudential assessments and differentiated regulatory tools, avoiding the evolution of digital renminbi from a "stabilizer" to a new source of volatility.

Outlook and Variables

From an institutional design perspective, this upgrade essentially delineates a development path for digital renminbi from "single payment tool" to "composite financial instrument": on one end, by introducing interest calculation and deposit insurance, it enhances its value storage and wealth management attributes; on the other end, by implementing differentiated reserve and margin arrangements for banks and non-bank institutions, it strictly limits their credit creation boundaries and operational space, ensuring that digital renminbi achieves "bounded embedding" within the existing monetary and financial system. Looking ahead, to assess the role of digital renminbi in residents' asset allocation and the structure of bank liabilities, it is still necessary to closely track several key variables that are yet to be disclosed: including but not limited to the actual range position of the digital renminbi interest rate within the deposit interest rate self-regulatory mechanism, the specific ratio setting of on-balance-sheet partial reserves for banks, and the magnitude of changes in the liability structure of various institutions after the introduction of digital renminbi. These will need to be based on subsequent documents and statistical data from the People's Bank of China. Currently, the market's interpretation of the "deposit-like nature" of digital renminbi exhibits a certain emotional tendency, with some discussions clearly exceeding the existing information boundaries. In the absence of published mechanism details and accurate quantification of impacts, it is essential to rely on the central bank and authoritative public documents, cautiously distinguishing between institutional direction and specific parameters, and avoiding excessive transactional interpretations based on partial information.

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