Monetary theory begins with a simple question: What is money? Yet the answer keeps evolving with technology and the economy.

Over the past decade, the People's Bank of China (PBC) has been exploring an institutional question: Should e-CNY remain digital cash, or should it evolve into a deeper form of money? This is not a purely academic inquiry.

The answer is now taking shape. The Recommendations for Formulating the 15th Five-Year Plan for National Economic and Social Development set a clear mandate to "steadily develop the digital Renminbi (e-CNY)". Drawing on a decade of theoretical research, closed-loop testing, and broad regional pilot experience, the PBC has issued the Action Plan on Further Strengthening the Management and Service System and Related Financial Infrastructure Construction of e-CNY (hereinafter referred to as the "Action Plan"). With the rollout of the Action Plan, a new generation of e-CNY management framework, management system, operating mechanism, and ecosystem came into effect on January 1, 2026, marking the transition of e-CNY from digital cash (e-CNY version 1.0) to digital deposit money (e-CNY version 2.0).

I. Evolving with the Times to Recalibrate the Positioning and Development Direction of e-CNY

With the outbreak of the global financial crisis in 2008, crypto assets, virtual currencies, and new forms of payment began to proliferate. This reflects the digital transformation of the economy and finance. It has also created new micro- and macro-financial risks, including shadow banking and financial disintermediation. Facing this new landscape, central banks of major economies and international organizations initiated research and development on Central Bank Digital Currency (CBDC)/Digital Fiat Currency (DFC). In 2018, the Bank for International Settlements defined CBDC/DFC as digital cash issued by the central bank in a value-based or blockchain-based form. The European Central Bank described CBDC/DFC as "a central bank liability offered in digital form for use by citizens and businesses for their retail payments". These definitions reflect a perspective of digital currency through the lens of central banking responsibilities.

China began research and development of e-CNY relatively early. In 2014, the PBC launched theoretical studies and closed-loop testing. In 2016, we proposed the Digital Currency/Electronic Payment (DC/EP) framework: an electronic payment instrument with digital-currency attributes. Since then, we have advanced the e-CNY pilots prudently, scientifically, and steadily. Following repeated evaluation and progressively expanded pilots, an initial ecosystem for e-CNY has taken shape, carving out a distinctive development path for CBDC/DFC—one led by the central bank, supported by commercial financial institutions and the existing payment infrastructure, and enriched by the latest technological advances.

At present, the domestic and cross-border pilot deployment of e-CNY has delivered positive results, placing it at the forefront of CBDC/DFC initiatives being tested by central banks worldwide. A distinctive feature is its hybrid architecture. It is fundamentally account-based while incorporating value-based features enabled by distributed ledger technology (DLT). It also supports software and hardware wallets, as well as online and offline payments. Complementing this foundational design is its programmability. E-CNY leverages smart contracts to digitize contractual arrangements and enable automatic, enforceable execution. Equally important is its strong supervisory capability, reflected in a centralized management framework characterized by a high degree of transparency, standardization, and interoperability. As a result of these design choices, e-CNY has evolved into a universal currency. Replicable and scalable use cases have been implemented across a wide range of sectors—including wholesale and retail, catering and tourism, education and healthcare, public services, social governance, rural revitalization, and cross-border settlement—covering both online and offline use cases. By the end of 2025, the total transaction volume reached 3.57 billion, and the total transaction value reached 19.5 trillion yuan ($2.9 trillion). A total of 230 million personal wallets and 19.08 million corporate wallets have been opened via the e-CNY App. Project mBridge has recorded a cumulative transaction value equivalent to nearly 500 billion yuan.

At the same time, we remain clear-eyed that, as real-world demand for the development and application of digital currency continues to grow, digital currency initiatives led by central banks worldwide are facing four common theoretical and practical challenges.

In this context, it is essential to properly understand the challenges that rapidly evolving digital payment tools pose to central banks' monetary regulation. A wide range of crypto assets—and now stablecoins—have emerged in the form of payment instruments. In practice, this has given rise to new forms of "currencies" circulating outside the formal financial system, creating risks such as the rapid expansion of off-system payment instruments and sharp fluctuations in the prices of the financial assets to which they are linked. Central banks therefore face a dual imperative: to harness the advantages of digital payment tools—namely lower costs and higher efficiency—while ensuring the effectiveness of macroeconomic management and maintaining orderly market development.

It is also essential to properly address the risks of financial disintermediation associated with the development of digital currencies. Compared with broader forms of money, cash enables real-time payment. Yet apart from issuance and redemption, cash circulates outside the financial system and operates independently, without requiring financial intermediaries to provide transaction or settlement services. In monetary and financial theory, the advent of modern banking transformed cash into deposits within the banking system, and through lending activities, banks continuously created deposit money. This marked the true transition of the economy and society from the ancient "currency" era to the modern "money" era. Digital cash is simply the digital form of cash. The creation of digital cash wallets and the conversion of bank deposits into digital cash are essentially equivalent to an increase in cash in circulation. This reduces liquidity within the banking system and lowers the money multiplier. Such effects are not hypothetical—they reflect the real and ongoing impact of any digital payment instrument that operates outside the banking system.

A further challenge is to align the rights and obligations attached to central bank liabilities with the responsibilities of commercial banks. Theoretically, as a liability of the central bank to the public, CBDC does not require the participation of commercial banks and other financial institutions in its operation and maintenance. However, in the course of research, development and pilot programs, there exist distinct differences in the rights and obligations associated with CBDC compared with physical banknotes in circulation. Commercial banks are indispensable operators for the opening of digital wallets, use-case development and technical maintenance; their services run through the entire life cycle of CBDC circulation, and they bear direct responsibility for the security, reliability, continuity and non-loss of CBDC circulation, as well as for anti-money laundering, counter-terrorist financing and anti-tax evasion (AML/CFT/ATE). In practice, they have thus become the primary liable parties for CBDC. Establishing a scientific and rational symmetry of rights and obligations is an unavoidable issue in the institutional design of CBDC/DFC.

Another key challenge is to combine the strengths of centralized account governance with the efficiency of distributed ledger technology (DLT). In the practical operation of money as a means of payment, account-based systems offer advantages in safeguarding customer rights and interests, as well as in meeting the regulatory requirements for standardization and compliance such as AML and anti-fraud. By contrast, blockchain excels at reducing the costs of asset legal title transfer and trust. Reconciliation of these two models into an integrated framework stands as a key challenge in institutional design.

To solve real-world problems and mitigate financial risks, we adopt a problem-oriented approach. Building on the DC/EP framework and years of R&D and pilot testing, the Action Plan marks the shift from digital cash to Digital Deposit Money. The e-CNY will be issued and circulated within the financial system. At the retail level, it will have commercial bank liability attributes and an account-based structure, while remaining compatible with DLT features. The central bank will provide technical support, safeguards, and oversight. The e-CNY will continue to serve as a unit of account, a store of value, and a medium for domestic and cross-border payments.

(Source : China Daily)