- China launched a CBDC with a reported annual yield of 0.35%.
- Its largest competitors, i.e., USD stablecoins, might not be able to compete due to fears of a bank run in the USA.
- No other competition exists in the world.
- No other projects have launched any yield-bearing fiat China CBDC.
The Chinese Government has remodeled its China CBDC program to boost its adoption. The Digital Yuan (eCNY) now offers a 0.35% annual yield, which will be automatically deposited into holders’ wallets. Until now, China CBDCs have been digital versions of fiat currencies and have worked much like stablecoins. The threat to the stablecoin market is that current stablecoins do not yield unless you deposit them for liquidity, which, again, has its own risks.
Yield Bearing Digital Yuan
The Chinese Central Bank and the Government of China have recently launched a Digital Yuan (eCNY), a yield-bearing China CBDC.. It is set to replace Digital Yuan, the previous version of Chinese CBDC, and will bear an annual yield of 0.35%.
For those wondering that the 0.35% yield is very low, they need to understand that no other stablecoin or China CBDC currently offers this. Even yield-bearing stablecoins like Binance’s BFUSD (which do carry risk) have little to compete because a fiat china CBDC can be used for direct purchases, unlike the BFUSD, which can only be used for liquidity staking.
The eCNY appears to have merged the concepts of stablecoins and yield-bearing assets, such as BFUSD. Stablecoins provide you with the ability to spend, while yield-bearing assets give you a guaranteed annual return.
Why Is It a Threat to Stablecoins?
No stablecoin offers yield in current markets, which are mostly USD-denominated. Which means that if eCNY gets adopted in countries with significant trade with China CBDC, they might trigger one of the largest offshore adoptions ever seen in digital currency history driven by incentives and long term trust.
These countries will have a reason to acquire eCNY, which is trade, and will get an additional benefit for holding it long term as reserves or settlement assets during volatile global conditions. A list of such countries is mentioned below.
Why USD Stablecoins Might Not be Able to Copy This?
Stablecoins like USDC, USDT, FDUSD, and PYUSD, which currently dominate global cross-border settlement, cannot provide yield-bearing assets.
In the current scenario, most of these stablecoins invest in US Treasury bonds and pocket all the yield they generate. If they give some yield to the public, it might kickstart a race, leaving no money for the stablecoin issuers. Further, if stablecoins began providing yield, it might bankrupt almost all banks.
With a US-CBDC out of the question, will there be any competition for the eCNY in the foreseeable future?
eCNY Sets a New Standard for Yield-Bearing CBDCs
The launch of a yield-bearing eCNY positions China CBDC as the undisputed leader in digital fiat innovation. By offering a guaranteed 0.35% annual yield directly to wallets, the Digital Yuan incentivizes holding while still functioning as a spendable currency. This dual advantage creates a strong network effect, as governments, corporates, and individuals engaged in trade with China gain both transactional utility and passive income.
USD-backed stablecoins, even with deep market penetration, cannot compete because they either provide no yield or carry additional risk through liquidity staking. Meanwhile, other CBDCs like India’s eRupee, Nigeria’s eNaira, and Russia’s eRuble either lack yield-bearing mechanisms or remain limited in cross-border usability.
With global trade increasingly intertwined with China, adoption of eCNY could accelerate rapidly, challenging existing stablecoins and traditional banking models. Essentially, the Digital Yuan merges spending efficiency with investment incentives, creating a first-of-its-kind model that might reshape international finance for decades to come.
A Note on Other CBDCs
The eCNY has achieved something difficult to replicate. All other CBDCs provide no yield-bearing rewards.
Digital Rupee (eRupee)
The Digital Rupee is one of the few CBDCs that could challenge the Digital Yuan, given the room for a yield-bearing eRupee. Currently, India’s central bank interest rates hover around 5.25%, leaving room for a 1% yield on the Digital Rupee (calculated via approximated heuristics).
Digital Naira (eNaira)
Nigeria’s digital currency, eNaira, was one of the first CBDCs and has considerably more real-world experience than others.
Digital Ruble (eRuble)
Russia launched an eRuble to address stablecoin demand in its country, left after US Sanctions cut Russia off from its own financial system.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
