After over a decade of theoretical exploration, pilot implementations, and systemic upgrades, the digital yuan is poised for a critical leap in 2026.
With the formal implementation of the People's Bank of China's "Action Plan on Further Strengthening the Digital Yuan Management Service System and Related Financial Infrastructure Construction" (hereinafter referred to as the "Action Plan"), a new generation of the digital yuan's measurement framework, management system, operational mechanisms, and ecosystem has been fully deployed. Its scope has expanded from being a digital replacement for physical cash (M0) to encompassing M1 and M2, marking a generational leap from a cash-type 1.0 version to a deposit-currency-type 2.0 version.
This core transformation not only clarifies the responsibilities and authority between the central bank and commercial banks but also, through the unique advantages of its hybrid architecture, institutional innovation of the two-tiered operational system, and pioneering exploration of cross-border applications, provides a replicable Chinese model for the global development of Central Bank Digital Currencies (CBDCs).
The upgrade does not constitute starting from scratch.
"Digital yuan's transition from version 1.0 to 2.0 is not a reboot, nor a change of track; it retains the core successful elements from the earlier pilot phases," stated Guan Tao, Global Chief Economist at Bank of China Securities. He believes its独创的 "central bank-commercial institution" two-tiered operational system, tested over a decade of practice, has gained widespread recognition from global central banks and international organizations, becoming a universal standard for digital currencies.
Analysis shows that after the upgrade in system architecture and operational mechanisms, the People's Bank of China (PBOC) remains the lead in constructing and operating the digital yuan system, while also promoting the development of supporting systems at the operational institution level. This system architecture must meet three core requirements: cross-institutional interoperability, standardized system construction, and a joint risk prevention and control mechanism, ultimately achieving a single, comprehensive ledger and intelligent monitoring and analysis.
The central bank's digital yuan system primarily undertakes two major functions: firstly, supporting the full lifecycle management of the digital yuan, covering the entire process of issuance, exchange, and circulation; secondly, providing core business functions such as issuance management, cross-institutional interconnection, wallet ecosystem management, public product services, smart contract template management, and cross-institutional invocation.
Zou Chuanwei, President of the Jiangsu Provincial Institute of Fintech and Digital Finance, views this upgrade as a further refinement of this architectural system, noting that the digital yuan continues to adhere to the "single, comprehensive ledger" principle of the two-tiered operational architecture. Under this architecture, the top-tier central bank端 assumes core coordinating responsibilities, setting business rules and technical standards, leading the planning, construction, and operation of infrastructure, and ensuring monetary sovereignty integrity and policy implementation efficacy. The second tier, comprising operational institutions centered on commercial banks, opens digital yuan wallets for individuals and entities, fully bearing responsibility for customer fund security, providing circulation and payment services, compliance reviews, and anti-money laundering efforts. Concurrently, regulators are strengthening the standardized management of non-bank payment institutions, requiring them to adhere to strict regulatory standards, implement a 100% digital yuan reserve requirement system, clarify the nature of related funds and incorporate them into supervision, achieving management parity with customer reserve funds.
Innovation in the technical architecture is the core support for this upgrade. The "Action Plan" specifies a digitalization solution based on "account system + currency string + smart contracts," proposing an upgrade to the existing account system and promoting the application of emerging technologies based on the new account type of the digital yuan wallet, thereby enhancing the digitalization and intelligence levels across all stages of yuan issuance, circulation, and payment. Simultaneously, it involves upgrading the digital yuan smart contract ecosystem service platform to support the construction of an open-source smart contract ecosystem.
Relying on this technical architecture, the digital yuan achieves full-process traceability. Transfers between digital wallets involve the direct transfer of encrypted digital yuan currency strings. An industry expert familiar with the digital yuan stated, "Where has the currency string gone? How much was issued? This can be fed back to the central bank in real-time. From a macro data perspective, real-time deposit data can be obtained, which is different from traditional bank deposits."
Looking back, the development of the central bank's digital yuan has been a long process evolving from theoretical exploration to gradual piloting, and then to systematic advancement.
A research report from Guojin Securities clearly divides this journey into four stages: from 2014 to 2017 was the early research and technology verification period, with the PBOC establishing a legal digital currency research group in 2014 and the Digital Currency Research Institute in 2016, which established the fundamental "two-tiered operational system" architecture.
From 2018 to 2020, it entered the pilot launch and scenario development phase, beginning internal "closed-loop testing" and orderly expanding the pilot scope; from 2021 to 2022 was the comprehensive piloting and institutional construction period, with the Digital Yuan (Pilot Version) APP officially launched in 2022 and the institutional framework gradually becoming clearer.
From 2023 to the present is the functional deepening and system upgrade period. In 2023, features like "offline and power-off payment" were added, and cross-border payment pilots accelerated. The landing of the "Action Plan" further propelled the digital yuan from the "digital cash 1.0 era" into the "digital deposit currency 2.0 era."
It is worth mentioning that in 2016, China首次创新性 proposed the "two-tiered operational architecture," a concept率先提出 by the PBOC with no global precedent. This upgrade of the digital yuan scheme allows it to be recorded on commercial banks' balance sheets, transforming from a liability of the central bank to a liability of commercial banks, while also possessing interest-bearing capability—a mechanism also established for the first time worldwide.
Subsequently, the PBOC will steadily expand the scale of digital yuan operational institutions under controllable risk conditions. Meanwhile, while retaining the positioning of the official digital yuan APP, mobile banking apps of participating operating banks, as well as platforms like WeChat and Alipay, will gradually gain permission to open digital yuan wallets. Throughout this process, all parties will develop collaboratively under a unified standard framework to ensure interoperability of wallet services.
In the global wave of digital currency exploration, the choice of technical pathway has always been a core issue. Some international organizations and central banks tend to favor purely blockchain-based models, while the development of crypto-assets and stablecoins has led many to believe that "only using blockchain technology constitutes a true digital currency."
However, China's pilot practice offers a different answer. The digital yuan started on a development path featuring a "hybrid architecture combining characteristics of both account and value (blockchain technology)."
Regarding the core architecture's non-reliance on blockchain technology, Zhang Jianhua, Counselor of the PBOC and Director of the Research Center for Financial Regulation and Technology at Tsinghua University's PBC School of Finance, cited two main reasons in an interview: First, performance adaptation requirements. As a retail-oriented legal tender, daily payment scenarios like QR code payments and subway gate transit require second-level response speeds. Blockchain technology has shortcomings in access speed for high-frequency transactions and cannot support large-scale, centralized retail payment demands.
Furthermore, integration with the existing financial system is easier. Currently, China's commercial banks possess mature and sophisticated payment and clearing systems, and the digital yuan adopts a two-level issuance mechanism involving the central bank and commercial banks. Adopting blockchain technology would require commercial banks to completely overhaul their existing payment systems or rebuild a payment and clearing system based on blockchain, which would significantly impact existing systems. Choosing a technical architecture compatible with the current system is more prudent.
"Technically, the digital yuan is account-based to ensure high concurrency, low latency, and strong oversight. This choice is grounded in the actual conditions and long-term development needs of China's financial system. Facing a payment market of over 1.4 billion users, current blockchain systems struggle to meet the requirements of a national-level payment system in terms of efficiency, security, and regulatory transparency," Zou Chuanwei stated in an interview.
Simply put, the innovation of the digital yuan lies in: integrating blockchain technology on the foundation of a centralized ledger. Its system contains multiple transaction processing systems that can be flexibly invoked based on the scenario. For instance, in massive retail and wholesale segments, the digital yuan operates on the centralized ledger, leveraging accounts to implement digital technology applications, maintaining centralization and management effectiveness. In specific scenarios requiring enhanced trust, it operates on a distributed ledger, utilizing blockchain for collaborative transactions, maintaining adaptability to new technologies and scenarios.
"Based on accounts and utilizing digital technologies like smart contracts, lower-cost, higher-efficiency digital currency payment services can be achieved," the aforementioned industry expert said.
Notably, the digital yuan's smart contracts differ from those in blockchain. "Smart contracts are not unique to blockchain; they are essentially programmable contracts that can be used on or off the blockchain—a computer program for 'automatic execution upon meeting agreed conditions'," Zhang Jianhua explained.
Zou Chuanwei also clarified that the digital yuan's smart contracts are embedded into the existing account system as a "conditional payment engine," enabling conditional triggering, directed use, and automatic execution of funds. This design preserves the normative and controllable nature of the account system while leveraging the flexibility and precision of smart contracts. Smart contracts in blockchain are inseparable from tokens on the blockchain. However, from the perspective of achieving conditional payment functionality, the digital yuan's smart contracts can achieve effects similar to those in blockchain.
In Zhang Jianhua's view, the core logic is that after participating entities reach consensus and set trigger conditions, preset commands are automatically executed when conditions are met. This can be deployed on a blockchain or implemented within non-blockchain financial systems. Blockchain-based smart contracts offer stronger programmability, relying on consensus mechanisms for execution; in non-blockchain scenarios, automatic fulfillment can be achieved through existing financial systems or network technology as long as participating parties agree on the conditions.
The value of digital yuan smart contracts is evident in practical applications. For example, Agricultural Bank of China deeply integrated digital yuan smart contracts into the supply chain of Luzhou Laojiao. Through data sharing with the distributor ordering platform, it achieved precise control of loan funds for "designated use," ensuring funds are directed specifically for purchasing Luzhou Laojiao products.
Although the core architecture of the digital yuan does not utilize blockchain technology, while adhering primarily to the account model, it is also exploring the application of blockchain technology in different domains.
For instance, the Digital Yuan International Operation Center utilizes blockchain and tokenization technologies to support on-chain payments with digital yuan. Combined with the Bank for International Settlements' unified ledger concept, this allows financial assets to be compliantly put on-chain, establishing a blockchain-based platform for the full lifecycle management of compliant digital assets.
In the cross-border payment domain, the multilateral central bank digital currency bridge (mBridge), jointly initiated in February 2021 by the central banks of Thailand, the UAE, the PBOC's Digital Currency Research Institute, and the Hong Kong Monetary Authority, is a typical representative of consortium blockchain technology application.
From trial operation in June 2024 to the end of 2025, the mBridge platform cumulatively processed 4,868 cross-border payment transactions, with a total transaction value equivalent to approximately 477.8 billion yuan, of which the digital yuan accounted for about 96% of the transaction volume across all currencies.
The aforementioned expert explained that, based on mutual trust among central banks, the core of cross-border CBDC application lies in achieving efficient connectivity between central banks and building a cross-border payment and settlement network, which requires supporting systems. Traditional centralized systems have obvious shortcomings in this scenario—they cannot balance the data privacy protection needs of different central banks and are prone to data security risks and sovereignty control challenges.
The distributed architecture of blockchain恰好能解决这一痛点. Reportedly, this architecture supports local deployment of nodes by each central bank, allowing countries to autonomously manage their own data without needing a unified central hub. The currency bridge based on this technology is suited for multilateral, multi-currency cross-border payment and settlement, facilitating convenient on-chain currency exchange, enhancing trust among cooperating parties. Moreover, as cross-border business has relatively lenient timeliness requirements, the second-level transaction speed supported by blockchain is sufficient.
Zhang Jianhua stated that the mBridge's use of blockchain technology core value lies in ensuring the immutability of cross-border payment information while allowing participating countries to autonomously control their node data, avoiding data leakage. Additionally, the requirement for response speed in cross-border payment scenarios is far lower than in retail payments; even if transaction times are on the minute scale, it can still meet user needs.
The modular design of the digital yuan system enables flexible connection with the infrastructure of various central banks, achieving "seamless integration" with cooperating jurisdictions. This design supports wallet categorization, simplifies wallet opening processes, and strictly adheres to the three principles of "non-prejudice, compliance, and interoperability." It not only increases mutual trust between jurisdictions but also effectively addresses the three major challenges prevalent in traditional cross-border payments: high cost, low efficiency, and low transparency.
Zou Chuanwei indicated that, in theory, cross-border payments using the digital yuan do not need to rely on the SWIFT messaging system, which aids in advancing the internationalization of the yuan, safeguarding China's monetary sovereignty, and preventing and responding to the extraterritorial jurisdiction of foreign countries.
Lu Lei, Deputy Governor of the PBOC, recently wrote that the next steps for the cross-border use of the digital yuan will involve continuous technological iteration, expanding the接入范围, reducing service costs, facilitating cross-border trade and investment financing, supporting innovation in offshore financial business, and promoting high-level, institutional opening-up.
"What is suitable is best. I believe that as PBOC-led application scenarios for the digital yuan, which兼容 the management advantages of the account model and the efficiency advantages of blockchain, continue to expand, it will help consolidate and strengthen China's leading edge in the exploration of digital finance and digital currencies," Guan Tao emphasized.
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