What does digital RMB balance interest calculation mean?

Article by: MaoSphere

On December 31, 2025, the six major state-owned banks announced that starting from January 1, 2026, the balances of digital renminbi real-name wallets held by customers at these banks will accrue interest based on their prevailing deposit rates, with interest calculation rules consistent with those of demand deposits. This means that funds in some digital renminbi wallets are shifting from the “original non-interest-bearing cash (M0)” form to the “interest-bearing deposits (M1)” form on the bank’s liabilities side.

Many friends’ first reaction is, “Isn’t digital renminbi just the digitalization of cash? Cash has never paid interest, so how is this now possible?” Behind this question lies a significant transformation: when a sum of funds is managed and interest is paid by a bank as a deposit, it is no longer just a “digital form of cash” in accounting and legal terms. Instead, it enters the bank’s liabilities, becoming part of the deposits. This shift indicates a fundamental change in the positioning of digital renminbi, and under certain wallet types, specific operating institutions, and terms, a “depositing” pathway has emerged. To understand this, one must observe from multiple levels including the legal positioning of digital renminbi, operational design, wallet tiering, monetary statistics standards, bank asset-liability relationships, and deposit insurance systems.

The People’s Bank of China explicitly clarified the “origin” of digital renminbi in the “White Paper on the Progress of Digital RMB Research and Development” (July 2021): it is issued by the “central bank,” adopts a “two-tier operation,” emphasizes “controllable anonymity,” and most importantly, “adheres to M0 positioning, with no interest paid.” The purpose of this principle is straightforward: digital renminbi is a retail central bank digital currency mainly used to meet domestic retail payment needs, maintaining the stability of the financial system and avoiding significant shocks to bank liabilities. Based on this baseline, if interest is paid on the “real-name digital renminbi wallet balance,” it ceases to be “pure M0 digital cash” and instead enters the bank’s balance sheet, forming a deposit liability to customers.

To clearly see this change, several legal and policy documents provide perspectives.

First is the “Draft Amendment to the People’s Bank of China Law” (public consultation October 2020), which explicitly states: Renminbi includes physical and digital forms, and digital renminbi is a legal tender.

Second is the “Deposit Insurance Regulations” (State Council Order No. 660, effective from May 1, 2015), which clearly specify: the scope of deposit insurance and the maximum payout limit, with the total principal and interest of all insured deposit accounts of the same depositor at the same insured institution capped at 500,000 yuan. This regulation is the fundamental law for determining “which funds are covered by deposit insurance.” Cash is not considered a deposit and thus not covered; bank deposits (demand, time deposits, etc.) are covered. Whether a share of digital renminbi enjoys deposit insurance depends on how it is handled at the bank. If the bank pays interest on certain real-name wallet balances and consolidates them as deposits, then this portion of funds should be protected under deposit insurance logic; if the wallet balance remains managed as digital cash and does not accrue interest, it still retains the legal status of legal tender, with safety derived from the legal status of fiat currency and central bank credit.

Understanding the macro implications of “interest on balances” cannot be separated from the three levels of monetary statistics. M0 is the cash in circulation; the positioning of digital renminbi in the white paper belongs to M0. M1 is narrow money, usually equal to M0 plus corporate demand deposits, reflecting “immediately payable funds for enterprises.” In China’s statistical standards, adjustments for the reserve funds of non-bank payment institutions have also influenced M1’s structure. M2 is broad money, which adds time deposits and other quasi-money instruments to M1, representing a wider liquidity indicator created through bank credit. The transition from “cash (M0)” to “demand deposits (M1)” is a qualitative change: cash is not considered a bank deposit in statistics, and banks have no obligation to pay interest on it; demand deposits are liabilities of banks, which require interest payments and can be used for loans or securities purchases on the asset side. Therefore, if certain real-name wallet balances are paid interest and consolidated as deposits, they are no longer just digital cash but enter the bank’s asset-liability management and credit creation process.

The bank’s balance sheet is a mirror. When customers deposit money, the bank forms “deposit liabilities”; on the asset side, the bank issues loans, purchases government bonds, deposits statutory reserves, engages in interbank placements or investments, and earns through interest margins and intermediary services. The principle of credit creation is not complicated: assuming a statutory reserve ratio of 10%, under ideal conditions (ignoring cash leakage, excess reserves, insufficient loan demand, etc.), the theoretical deposit multiplier is approximately 1 divided by the reserve ratio, i.e., 10. In reality, loan demand, risk appetite, capital adequacy, regulatory requirements, and economic cycles all influence the actual money multiplier. Placing “interest on balances” within this framework may provide banks with more stable, low-cost liabilities, thereby enhancing their lending capacity. Ultimately, whether this capacity translates into actual credit and investment volume depends on macroeconomic cycles, regulatory policies, and market demand.

Wallet tiering and real-name verification strength serve as a “scale” at the micro level for digital renminbi. Simplified:

Type I Wallet (Strong Real-Name)

Verification requirements: Must visit a bank branch for in-person verification, confirm identity information, and bind a personal bank account; highest real-name verification strength.

Limitations: No transaction amount or number limits; the only wallet type without quota restrictions.

Applicable scenarios: Large fund transfers for corporate users, high-frequency large transactions/payments for individuals; suitable for unlimited quota needs.

Type II Wallet (Relatively Strong Real-Name)

Verification requirements: Can be opened remotely online, must bind a personal bank account, and complete facial verification and other strong identity authentication.

Limitations: Higher daily transaction limits (subject to operator announcement, usually much higher than Types III and IV), satisfying most daily personal payment needs.

Applicable scenarios: Daily personal consumption, transfers; balancing convenience and quota requirements; one of the mainstream choices for individual users.

Type III Wallet (Basic Real-Name)

Verification requirements: Verified via mobile phone number + ID information, no bank account binding needed; moderate real-name verification.

Limitations: Lower daily transaction limits and wallet balance caps than Type II, suitable for small retail payments.

Applicable scenarios: Convenience store purchases, public transportation, food delivery, and other small, high-frequency retail scenarios.

Type IV Wallet (Weak Real-Name / Anonymous)

Verification requirements: Only need to register with a mobile phone number, no ID information required; lowest real-name verification strength; supports registration with overseas mobile numbers and binding external cards, i.e., “visitor wallet.”

Limitations: Lowest daily transaction and wallet balance caps, only supports small payments.

Applicable scenarios: Short-term foreign visitors’ small transactions in China, and domestic users’ anonymous small payments.

The specific limits (per transaction, daily cumulative, maximum balance), required documentation, and available functions for each wallet type may vary by operating institution and pilot region; actual standards are subject to the requirements of operators and regulators. Understanding these tiers helps grasp the practical boundaries of “which wallets accrue interest and which do not”: generally, the stronger the real-name verification, the more likely it is to be deeply linked with bank accounts and consolidated as deposits; the weaker the verification, the closer it is to the experience of “digital cash cards,” emphasizing convenience and privacy.

Balancing privacy and compliance is a key theme in the design of the digital renminbi system. The concept of “controllable anonymity” can be summarized as protecting user privacy as much as possible in small, high-frequency daily transactions, but adhering to AML, counter-terrorism financing, and tax evasion regulations when reaching higher amounts, frequencies, or specific business scenarios, by implementing stricter KYC and transaction review processes. Relevant domestic laws such as the “Anti-Money Laundering Law,” “Personal Information Protection Law,” “Data Security Law,” and “Cybersecurity Law” provide frameworks for privacy and compliance in the payment sector. As a digital form of legal tender, digital renminbi must ensure payment accessibility and convenience while maintaining financial risk controls. This “stability and speed” combination relies on the coordination of systems and technology.

Many are concerned whether this “interest accrual” will alter the fundamental positioning of digital renminbi as “digital cash.” A more prudent understanding is that the core positioning of digital renminbi remains unchanged: it is still M0, a legal digital currency; operationally, allowing certain wallet types to be “depositified” at the bank is a layered coexistence approach. The benefit is that user experience becomes closer to bank accounts, encouraging fund retention; banks gain low-cost, stable liabilities, improving their asset deployment capacity; at the macro level, monetary statistics will adjust accordingly, with some funds originally in M0 shifting into M1. This does not mean a wholesale shift of digital renminbi toward “depositification,” but rather a “deposit relationship formation within specific wallet types and scenarios.” Therefore, boundaries and details are crucial.

Some link this change to the internationalization of the renminbi. Digital renminbi indeed improves payment experiences for tourists coming to China: visitor wallets support binding with overseas mobile numbers and external cards, eliminating the need to open local accounts, making payments more direct under compliance. For example:

Wallet opening (Type IV, tourist-specific)

Access: Digital RMB app or bank app, select “Overseas Resident / Tourist Wallet,” input overseas mobile number for verification, and open with basic verification—no need for a domestic bank account.

Real-Name Verification: Only mobile number verification, weak real-name, compliant with Type IV wallet rules, with very low limits (subject to bank disclosures, usually a few thousand yuan per day, with a balance cap around 10,000 yuan).

External Card Recharge and Funds Source

Main method: Bind Visa, Mastercard, or other overseas credit/debit cards, initiate recharge via bank app or digital RMB app, support online payment channels for external cards, some banks support overseas mobile banking for authorization and recharge.

Backup options: Hard wallet exchange machines at airports, high-speed rail stations, etc., where external cards can be used to directly exchange for digital RMB hardware wallets (e.g., ICBC, CCB).

Payments and Usage

Online: Support digital RMB payments on e-commerce, food delivery platforms; offline: QR code or NFC “touch-to-pay,” covering retail, transportation, dining, and other high-frequency scenarios.

Offline without network: Support dual offline payments, suitable for scenarios without internet (e.g., some scenic spots, metro).

Cancellation and Refunds

Can be remotely canceled via app; remaining balance can be refunded to external cards (according to card rules), or processed as cash refunds at designated outlets (supported by some banks).

Meanwhile, fees and limits for transactions, withdrawals, cross-bank, and cross-wallet transfers should be carefully understood: fee rules and limit details vary among operators and banks; higher-tier wallets generally have broader limits and functions but also stricter KYC and compliance requirements. A simple suggestion is to carefully read the service agreements and bank notices of your wallet, clarify your wallet type, fund form, and rights and obligations, especially whether it “accrues interest,” “is consolidated as a deposit,” and “is covered by deposit insurance.”

The development of digital renminbi has been a cautious and steady process. Its initial phase can be traced back to around 2014, when the People’s Bank of China established a research team for legal digital currency, focusing on overall framework, key technologies, application ecology, and policy support. During 2020–2021, pilot projects in Shenzhen, Suzhou, Xiong’an New Area, Chengdu, and the Beijing Winter Olympics were launched, gradually expanding to more cities and provinces, forming a “10+1” coverage pattern. Since 2022, ecosystem construction accelerated, expanding from retail to public sector applications: salary payments, tax payments, government subsidies, supply chain finance, and more. Support for inbound tourists has also increased, with visitor wallets supporting overseas mobile numbers and external card binding, alleviating many people’s “payment inconvenience” in China. Meanwhile, the People’s Bank of China, together with the Bank for International Settlements (Hong Kong) Innovation Center and other central banks, participated in the “Multilateral Central Bank Digital Currency Bridge” (Project mBridge), conducting pilots and technical validation for cross-border payments focusing on efficiency, compliance, and risk control. As macroeconomic cycles, monetary policy, and fintech evolve collaboratively, digital renminbi will continue to optimize management systems, infrastructure, and cross-border applications. The public’s role is to understand the rights and obligations of different wallet types, verify specific interest rates and fees, prioritize privacy and security, respect compliance and risk boundaries. On this Chinese-style digital currency journey, “reliability, prudence, and order” are key.

This market trend of “interest on real-name wallet balances” is more like a differentiated operational arrangement allowing banks to manage and pay interest on certain wallet types as deposits, rather than a fundamental redefinition. It will influence some people’s fund retention habits and impact bank liabilities and asset deployment, reflected through changes in monetary statistics. Whether covered by deposit insurance, how interest is calculated and settled, fee rates and limits, privacy, and compliance boundaries should be based on official documents from operators and regulators. For the long-term development of digital renminbi, cautious progress, reliability, and accurate referencing are the most important principles. As the public, our role is to understand wallet tiering, identify fund forms, respect compliance and risk controls, reasonably assess yields and costs, and seek a better balance among “inclusiveness, resilience, privacy, and security” through digital renminbi.