China's Central Bank, the People's Bank of China, said it will continue an accommodative monetary policy this year. In addition to cutting the reserve requirement ratio (the ratio that banks are required to keep on deposit at the Central Bank; hereafter RRR) and interest rates, the People's Bank plans to set up a liquidity provision mechanism for nonbank institutions. At the same time, it is moving aggressively to boost use of the "digital yuan," treating it not as a payment instrument but as deposit money and beginning to pay interest.
According to Chinese business outlets Caixin and 21st Century Business Herald on the 7th, the People's Bank held a work meeting on the 5th–6th and outlined its key tasks for 2026. With a stance of being "appropriately accommodative," the People's Bank said it will supply liquidity to the market with the core goals of promoting high-quality economic growth and a recovery in prices.
To break the prolonged deflation (falling prices) first, the People's Bank plans additional cuts to the RRR and interest rates. The loan prime rate (LPR), which the People's Bank announces monthly and is effectively regarded as the benchmark, went from 3.35% in Oct. 2024 to 3.10%, then was lowered to 3.0% in May last year, and has been unchanged for seven months. The RRR was cut by 0.5 percentage point in May last year. The People's Bank said, "We will keep financing conditions generally in a relatively accommodative state to guide a reasonable increase in aggregate credit and a balanced expansion of lending."
It is also preparing a new institutional mechanism to provide liquidity to nonbank institutions under specific circumstances. Although the mechanism has not yet been finalized, the People's Bank previously supported investment by providing liquidity against collateral such as securities and exchange-traded funds (ETFs) to brokerages, fund houses, and insurers.
On the yuan's exchange rate, it said it will keep it stable to prevent excessive adjustments. Recently, the onshore and offshore yuan-dollar rates have both strengthened, breaking through 7 yuan to the dollar. 21st Century Business Herald noted, "If the yuan appreciates too rapidly, the People's Bank may take action, and the Central Bank has ample policy tools to stabilize the exchange rate."
The push to expand the "digital yuan," the legal digital currency issued by the People's Bank, has taken another step. According to the state-run Xinhua News Agency, the People's Bank has begun treating the digital yuan not merely as "digital cash" for payments but as "digital deposit money." As a result, the digital yuan has been granted the same status as deposits held at commercial banks, and interest began to be paid from the 1st of this month.
In addition, balances of the digital yuan will be incorporated into banks' asset management frameworks, just like ordinary bank deposits. They will be protected by deposit insurance and reflected in the calculation base for banks' RRRs. Deputy Governor Lu Lei of the People's Bank of China revealed this in an op-ed in Financial News, saying, "The digital yuan will move from a cash-type 1.0 version to a deposit-money-type 2.0 version."