Policy in money: China’s CBDC
This year the e-RMB has been granted new powers: to pay a yield, and to incentivize behavior. This sets a reference point, if not a template, for the rest of the world.
China is getting serious about promoting its digital yuan, or e-RMB. What began as a “digital cash” testing ground is being re‑engineered into interest‑bearing, programmable money embedded in green and social policy.
That shift has direct implications for Chinese banks, platforms, and insurers, and it sets a reference point, if not a template, for how other states think about encoding policy goals into money itself.
After years of pilots with modest everyday usage, Beijing is making two big changes: turning e-RMB into deposit‑like money that pays interest, and embedding it into incentive schemes such as Shanghai’s “carbon inclusive” platform.
Together, they move e‑RMB from an experiment to something that looks and feels more like mainstream money with built‑in policy hooks.
New incentives
From 1 January 2026, Chinese commercial banks are required to pay interest on real‑name e‑RMB wallet balances, benchmarked to prevailing deposit‑rate guidelines. (Currently, those range from 0.05 percent for demand deposits to 1.35 percent for five-year fixed-term deposits.)
Those balances come onto bank balance sheets as deposit liabilities and are covered by deposit insurance, reclassifying the digital yuan from non‑interest‑bearing M0 cash into M1 digital deposit money.
The People’s Bank of China has been running e-RMB pilots since 2014 and this marks a shift into using levers to drive adoption, which has been modest so far.
Modest, but scaling. By the end of November 2025, according to Chinese media CGTN, e‑RMB had processed about 3.48 billion cumulative transactions worth 16.7 trillion yuan, up from roughly 14.2 trillion yuan in late October and less than half that volume in mid‑2024. Wallet numbers sit around 230 million for individuals and nearly 19 million for corporates, although active monthly usage remains a minority of total wallets.
Authorities are also broadening scenarios: salaries and government payouts in some regions, public‑transport systems, utility bills, and large‑event trials have all been added to the e‑RMB playbook.
Of these, the green push is new, and takes incentives into a new sphere. Shanghai’s carbon‑inclusive platform quantifies low‑carbon commuting (buses, metro, shared bikes, electric vehicles) and converts the measured emission reductions into points that can be redeemed for subway fare discounts, food‑delivery vouchers, or streaming memberships, with redemption possible in digital currency and coupons.
In its first months, the trial attracted around 130,000 users and nearly 300 businesses, with several tonnes of CO₂‑equivalent reductions recorded; the scale is small, but the pattern is what counts: behavioral data in, policy‑steered rewards out, via programmable money.
Domestic implications
At first blush, this would seem like a competitive problem for commercial banks in China, but Beijing has designed its yield policy to avoid disrupting them.
Because real‑name e‑RMB balances are now booked as deposit liabilities and count toward reserve requirements, converting a demand deposit into an e‑RMB balance at the same bank does not strip funding out of the banking system; it re‑labels it within the same balance sheet. Banks shouldn’t see a loss of deposits, so their funding models are intact.
For now. As users grow accustomed to a state‑branded, insured, always‑on wallet, banks face sharper competition on pricing and product design, especially if customers begin comparing deposit rates and conditions across bank‑issued e‑RMB wallets as easily as they switch apps. The adoption of agentic AI would hasten this competitive force. (It will be interesting to see how China regulates this as it pertains to the stability of its banks.)
But could this make commercial banks vulnerable to a run, if depositors prefer the safety of banking directly with the PBoC? The market crisis of 2015 shows such panics can and do occur in China. An interest‑bearing CBDC wallet could in principle accelerate outflows from weaker banks in stress episodes. China is trying to damp this by using tiered KYC, holding limits, and supervisory integration of e‑RMB balances into liquidity and reserve metrics. The central bank gains more visibility and more levers; commercial banks accept tighter integration of their funding with a programmable state rail.
For big tech platforms and payment processors, e‑RMB is a structural disciplining device. Alipay and WeChat Pay remain dominant interfaces, and in some cases their affiliated internet banks (MYbank and WeBank) are among the institutions authorized to pay interest on e‑RMB wallets. That lets Beijing co‑opt their UX, merchant networks, and data, while steadily shifting ultimate control over the monetary layer and part of the data layer into PBoC‑centric infrastructure.
The long‑term risk for platforms is that they become front‑end window dressing over public rails, with less room to monetize float, payments data, or proprietary loyalty currencies.
If a beefed-up e-RMB poses challenges to banks and platforms, one of the winners could be insurance companies.
The combination of CBDC and carbon‑linked incentive schemes creates higher‑quality behavioral data: verified mobility, EV charging, energy‑efficient purchases, and other low‑carbon actions can all be tagged in payment streams and linked to carbon scores. Insurers can, in principle, use that data to design more granular risk‑based pricing and rewards. Think of discounts for EV usage and safe driving, lower property premiums for retrofitted buildings, or parametric covers that pay automatically when climate or emissions thresholds are met. Policies would be paid out via programmable e‑RMB.
Another beneficiary is China’s green-finance agenda. But from an outsider’s perspective, this also raises concerns about selection, fairness, and the fusion of climate, social, and political scoring into one behavioral‑monetary system.
International implications
Foreign financial institutions and fintechs encounter e‑RMB in three ways: as a domestic payment rail they must plug into, as part of cross‑border RMB strategies, and as a reference model for their own jurisdictions’ CBDC debates.
Onshore, foreign banks and payment firms operating in China will be under pressure to support e‑RMB for retail and corporate customers, just as they had to integrate with Alipay/WeChat ecosystems. This could prove expensive, although with some opportunity to grow business.
It means adapting systems for e‑RMB‑denominated balances, interest crediting, and programmable payment logic, potentially with less commercial upside than supporting private wallets but higher regulatory expectations. For foreign insurers and asset managers, distribution partnerships around green‑linked, RMB‑denominated products such as green bonds, ESG funds, and climate covers, may need to support e‑RMB rails to access official channels and subsidies.
Cross‑border, China is already pairing e‑RMB with multi‑CBDC projects such as mBridge, alongside partners like Hong Kong, Thailand, and the UAE, with an eye to Belt and Road Initiative‑linked trade flows and RMB internationalization.
Foreign institutions that want to intermediate in those corridors will need both technology and compliance capabilities to transact in e‑RMB and possibly other CBDCs, as well as to embed policy‑driven features like purpose‑bound payments or carbon‑linked conditions into trade and project‑finance structures. That is an opportunity for banks and fintechs that specialize in tokenized trade assets, programmable escrow, and cross‑border treasury...but only if they can live within a highly state‑directed framework.
For other central banks and regions designing CBDCs, China’s latest moves serve as both inspiration and caution.
The European Union’s digital euro project is explicitly studying foreign CBDC experiences and sees value in two‑tier architectures and limited programmability, but prioritizes privacy, financial‑sector stability, and legal constraints in a way that sharply diverges from e‑RMB’s surveillance‑linked design.
European documents stress that the Eurosystem should not be able to see individual transaction details and that any programmability must be user‑ or PSP‑driven, not a tool for central policy steering of lawful private consumption. Liberally minded countries may find better results from allowing private, agentic AI to stimulate many of the benefits that the e-RMB’s green credit schemes provide.
But there is a gray zone between China’s absolutist approach and a Eurozone that upholds individual privacy (to say nothing of the chaotic, laissez-faire approach in the US).
India and the UAE occupy a middle ground.
India’s e‑rupee pilots and e‑RUPI vouchers echo China’s purpose‑bound, programmable payments for subsidies and inclusion, but they sit alongside a hugely successful open payments stack (UPI) and operate in a more pluralistic political environment.
The UAE’s digital dirham, deeply tied into mBridge and tokenised‑finance ambitions, looks more willing to adopt China‑style programmable cross‑border rails, and surveillance-designed money fits its politics as an absolute monarchy. But Abu Dhabi must also remain attractive to global institutions and crypto‑adjacent firms, which constrains how far it can go on surveillance and behavioral controls.
In short, other jurisdictions are likely to copy China’s technical patterns, such as two‑tier issuance (with commercial banks and tech platforms the front end), programmable features for specific use cases, and cross‑border DLT rails. But they are unlikely to embrace the full political logic of centralized data visibility and pervasive policy steering.
Money as policy
The most far‑reaching implication of China’s e‑RMB strategy is not domestic adoption per se, but the normalization of “policy in the money.”
Interest on e‑RMB is policy in money: it turns central bank digital money into a lever for influencing deposit allocation, bank behavior, and (potentially) differentiated incentives by region or sector.
Shanghai’s carbon‑inclusive platform is policy in money: it encodes climate incentives such as fare discounts, vouchers, and memberships into the payment and wallet layer, automated by smart‑contract‑like logic that bridges behavioral data and monetary rewards.
This proves that governments can use their CBDC to:
Deliver subsidies and social transfers that are tightly targeted and traceable, reducing leakage and enabling more precise budget management.
Design purpose‑bound or expiring transfers (for consumption, green investments, or crisis response) that encourage specific behaviors without changing tax law or subsidy structures each time.
Integrate regulatory, fiscal, and monetary objectives in a single programmable rail; for example, climate goals via green wallets, inclusion goals via fee and rate structures, and financial‑stability goals via holding limits and dynamic remuneration.
But the same capabilities that make climate rewards and targeted subsidies attractive also make broader behavioral and political control easier. In a system like China’s, where party‑state priorities explicitly shape economic and social life, it is not a large conceptual leap from “green commuting rewards” to differentiated access and conditions for a wide variety of behaviors, with payments and insurance pricing as key enforcement levers.
Even if other countries do not go that far, the precedent is there: CBDCs turn money from a neutral medium into a programmable tablet where policy can be written directly.
For foreign policymakers and practitioners, that raises three strategic questions:
Where to draw the line on programmability? Most central banks now publicly accept that some programmability is useful – for escrow, corporate workflows, conditional transfers – but are visibly uneasy about broad state control over legal‑tender usage, especially in liberal democracies.
How to govern data and scoring? The more CBDC is used to implement climate, health, or social policy, the more it will rely on personal and corporate behavioral data. Robust governance, transparency, and redress mechanisms become essential to prevent discriminatory or opaque scoring, particularly in insurance and credit.
How to coexist with private digital money? In China, e‑RMB is explicitly a tool to discipline big‑tech wallets and private platforms. Elsewhere, CBDCs will likely coexist with regulated stablecoins, tokenized deposits, and incumbent payment systems, making it more natural to use CBDC as a neutral settlement and public‑sector rail rather than as an all‑encompassing policy instrument.
China has shown that a state can take ideas that originated in Web3, such as programmable money, tokenization, and composability, and integrate them into a highly centralized monetary and policy regime.
In other words, China is doing what states have done throughout history: co-opt private innovations in money. Just as private merchants in Sichuan invented “flying money” to move large sums safely across large distances, the Song dynasty quickly monopolized the printing of paper money, and the Yuan (Mongol) dynasty pioneered incentives to force adoption, such as pain of death for using specie. Shanghai’s carbon-inclusion scheme seems like an improvement.
It took Europe six centuries longer to embrace paper currency. CBDCs will not take so long to spread! But whatever the jurisdiction, once money becomes programmable at scale, then debates about monetary policy, regulation, welfare, climate, and financial stability all converge onto the questions of what to allow the code of money to do, and who gets to write it.