China to Pay Interest on Digital Yuan in Bid to Boost Adoption (Bloomberg)
China will begin paying interest on its digital yuan (E-CNY) starting January 1, 2025, as part of efforts to boost adoption of the central bank digital currency (CBDC). Commercial banks operating digital yuan wallets will pay interest based on holdings, giving the digital currency the same legal status as traditional bank deposits. However, the initiative faces challenges: interest rates on demand deposits at major Chinese banks are currently just 0.05%, and the digital yuan has struggled to compete with established payment platforms like WeChat Pay and Alipay despite being piloted in over half of mainland provinces. [Source: Bloomberg]
Regulatory Responses to the Financial Stability Implications of Stablecoins (SSRN)
Ulrich Bindseil posted an updated version of his paper that examines the financial stability implications of stablecoin regulation, particularly regulations that prohibit remuneration to protect banks from deposit outflows. He argues that these particular regulations make stablecoin viability cyclically dependent on interest rates rather than addressing financial stability systematically. Additionally, the prohibition creates competitive distortions between European and U.S. stablecoin markets, because European Union (EU) regulations also prohibit stablecoin wallet providers from offering indirect returns, whereas U.S. regulations allow circumvention through third-party yield arrangements. This makes EU stablecoins relatively uncompetitive as stores of value. If protecting banks from deposit outflows is the goal, Bindseil proposes requiring stablecoin issuers to hold a proportion of reserves with the central bank at below-market rates. At the extreme, that proportion could be 100%, which would additionally reduce the risk of stablecoin runs. [Source: SSRN]
Lessons from Global CBDC Pioneers for Rwanda’s Next Leap (RBA)
The Rwanda Bankers’ Association (RBA) published an analysis of pioneering central bank digital currency (CBDC) implementations in the Bahamas (Sand Dollar), Jamaica (JAM-DEX), and Nigeria (eNaira). Using quantitative pre- and post-launch data analysis, the study finds that theoretical fears of bank disintermediation did not materialize—commercial bank deposits actually grew significantly in all three countries after CBDC introduction. The research reveals that CBDC rollouts coincided with broader macroeconomic shifts including tighter monetary policy and economic rebounds, while direct effects on inflation remained statistically insignificant. However, the primary challenge across all cases was achieving widespread public adoption rather than financial instability, with uptake remaining extremely low despite technical readiness. The paper concludes that for Rwanda, currently in its CBDC Proof-of-Concept phase, success will depend less on mitigating theoretical risks and more on delivering a compelling value proposition that addresses the country’s specific challenges including limited smartphone ownership (34.3%), low internet access (29.8%), and the need for enhanced payment system resilience, financial inclusion, and reduced cross-border remittance costs. [Source: RBA]
Upcoming Speaking Engagements:
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! [Register here and get 20% off the regular ticket price by using the Kiffmeister20 code!]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
