China is preparing a significant upgrade to its digital currency architecture, with the next generation of the digital renminbi scheduled to take effect from January 2026. The shift marks a decisive move away from treating the e-CNY as purely digital cash and toward a model that more closely resembles digital deposit money, embedded within the banking system. For Europe, the change offers a timely reference point as lawmakers and the European Central Bank refine the design of the digital euro.
According to senior officials at the People’s Bank of China, the new framework reflects more than a decade of experimentation and large-scale pilots. By the end of 2025, the digital yuan had processed tens of billions of transactions and reached hundreds of millions of users, making it the most widely used retail central bank digital currency in the world.
From digital cash to digital deposits
The most important change is conceptual. China no longer sees the digital yuan primarily as an electronic substitute for banknotes. Instead, it is repositioning e-CNY as a form of regulated digital money closely integrated with commercial banks’ balance sheets.
Under the new system, digital yuan wallets provided by banks will be treated similarly to deposits, with corresponding reserve requirements and consumer protections. Non-bank payment firms will be required to back digital yuan holdings with full reserves. The aim is to preserve financial stability, limit disintermediation, and ensure that digital money does not bypass the traditional banking system.
This approach contrasts with earlier fears that retail CBDCs could drain deposits from banks. Beijing’s answer is not to limit functionality, but to redesign the instrument so that it fits naturally inside the existing financial architecture.
A hybrid technology stack
China is also doubling down on a pragmatic technology strategy. Rather than committing fully to either centralised ledgers or blockchain systems, the digital yuan will continue to operate on a hybrid model.
Account-based systems will handle high-volume retail payments and compliance requirements, while distributed ledger technology will be used selectively for programmable payments, smart contracts and cross-institutional settlement. This flexibility has already supported cross-border pilots through the mBridge platform, where the digital yuan has emerged as a dominant settlement currency.
For policymakers, the message is clear: technology choices are tools, not ideology.
Governance and control remain central
The upgraded framework also strengthens governance and oversight. The central bank retains full control over issuance, standards and core infrastructure, while commercial banks and authorised providers manage customer relationships and compliance. Advanced data analytics and automated supervision are designed to improve risk monitoring without granting the central bank visibility into individual spending patterns.
In public statements, Chinese officials have emphasised that the redesign is intended to improve efficiency and resilience, not expand state surveillance. Whether that reassurance convinces international observers is another question, but the structure itself reflects careful calibration between innovation and control.
What this means for the digital euro
For Europe, China’s experience is instructive, even if political and legal contexts differ. The European Central Bank has consistently stressed that the digital euro would be a means of payment, not a savings vehicle. Yet debates over holding limits, bank disintermediation and private sector roles remain unresolved.
China’s shift toward a digital deposit-style CBDC suggests one possible answer. Rather than treating digital public money as something fundamentally separate from bank money, it can be designed to reinforce the existing system while still delivering new functionality.
The lesson is not that Europe should copy China, but that design choices matter more than labels. As the digital euro project moves closer to legislative decisions, Beijing’s latest pivot adds another data point to a rapidly evolving global conversation about the future of money.