China is set to launch an “action plan” for its digital currency on January 1, according to a deputy governor of the country’s central bank. The plan aims to enhance the management and operations of the digital yuan, which will serve as a modern digital payment and circulation means within the financial system.

The digital yuan, also known as the “e-CNY,” has been in development since 2014, with the People’s Bank of China (PBoC) conducting pilot programs to test its use. The upcoming plan will introduce a new generation of arrangements, including a measurement framework, management system, operating mechanism, and ecosystem. One key aspect of the plan is that banks will pay interest on digital yuan balances held by clients, incentivizing broader adoption of the currency.

The PBoC also proposes establishing an international digital yuan operations center in Shanghai, a major financial hub in eastern China. This move is part of a broader trend of monetary authorities worldwide exploring ways to digitalize currencies, driven by the growth of online payments during the pandemic and the increasing popularity of cryptocurrencies like bitcoin.

In China, mobile and online payments are already widely used, but the digital yuan could provide the central bank with greater access to data and control over payments, rather than relying on big tech giants. The launch of the digital currency plan on January 1 marks a significant step forward in the development of the digital yuan, which could have far-reaching implications for the country’s financial system and beyond.

The development of digital currencies is a global phenomenon, with many countries investigating the potential benefits and challenges of introducing digital versions of their currencies. As China moves forward with its digital yuan plan, it will be closely watched by other countries and financial institutions, which are likely to be interested in the outcomes and lessons learned from this initiative.