China's digital Renminbi has been in circulation for more than a decade, functioning seamlessly all along. Recently, the People's Bank of China unveiled an action plan aimed at refining the digital Renminbi framework. Deputy Governor Lu Lei penned an article to shed light on the pertinent developments. Initially, as a currency directly issued by the central bank, digital Renminbi was categorized as M0, representing digital cash that could be freely converted to and from bank deposits. Its payment mechanism relies on the transmission of digital signals, setting it apart from account-based payment systems. Nevertheless, owing to the limited public demand for M0 and the inherent benefits of account-based payments, the scale of digital Renminbi has remained relatively modest for an extended period.

With the advent of technologies like distributed ledgers, the capabilities of smart contracts have come to the forefront. However, personal deposits held in bank accounts are governed by the Regulations on the Administration of Savings, posing challenges to the integration of smart contracts. Consequently, digital Renminbi has undergone a transformation, evolving from digital cash to digital deposit currency, marking its entry into version 2.0. This upgrade positions it as a new breed of bank account that not only maintains the efficiency of account-based payments but also unlocks novel functionalities, including smart contracts.