The Shift in China’s CBDC (Digital Yuan) Policy and Key Implications (JRI)
Japan Research Institute (JRI) published a paper that analyzes China’s decision in late 2025 to shift the digital yuan (e‑CNY) from a non‑interest‑bearing central bank digital currency (CBDC) to an interest‑bearing commercial bank liability integrated into reserve requirements and deposit insurance (i.e., functionally a tokenized deposit). It argues this redesign aims to align bank balance‑sheet incentives, move usage toward corporate and cross‑border payments, and better plug into the mBridge cross‑border infrastructure as part of a strategy to deepen renminbi‑denominated settlement outside the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system. Unresolved issues include whether this deposit‑based model can achieve scale amid entrenched super‑app payments, opaque mBridge usage, and continued constraints on non‑official digital currencies in China. [JRI]
Blockchain Consensus Mechanisms and Fragmentation (BIS)
The BIS published a paper by Eidan, Frost, Kansal, Lewrick, Lim and Rybarczyk that argues permissionless blockchains are structurally driven toward fragmented, specialized infrastructures rather than a unified financial market infrastructure, in the context of rising crypto and stablecoin use. The paper links heterogenous consensus mechanisms and token incentive structures to distinct equilibria across layer 1 and layer 2 networks, which fragment liquidity horizontally and vertically. It shows that mitigation tools—bridges, native multi‑chain issuance, shared middleware and interoperability protocols—reduce frictions but recreate concentrated trust, governance and operational nodes. A key unresolved issue is how to design standards and regulatory perimeters that reduce fragmentation while preserving competition and cross‑border interoperability. [BIS]
A Money View of Offline Payment Functionality (SSRN)
G+D’s Lars Hupel has updated his “money view” offline payments paper, arguing that offline-capable retail payment systems should use a single issuer, not multiple bank issuers, in the context of CBDC and fast payment system design. The paper compares central bank CBDC, a multi-issuer commercial bank token model, and a single-issuer model for offline value transfer; it finds that multi-issuer offline tokens create foreign-liability, fungibility, and counterparty-risk problems, while a single-issuer structure more closely preserves cash-like bearer behavior. The policy significance is that offline functionality can be built without a central bank-issued instrument, but only if issuance, prefunding, settlement access, and anti-money-laundering controls are centralized enough to preserve finality and risk management. [SSRN]
BTW if you want to see a complete database of my DFC-related posts going back years, including many that didn’t make the Daily Digest cut, click here.
FYI 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.
