China's Digital Yuan Retreat Should Alarm Europe's CBDC Architects Beijing's decade-long e-CNY experiment just hit a wall. For European policymakers racing to launch the digital euro, the lessons are uncomfortably direct. ## What happened in China On January 1, 2026, China's central bank quietly executed a fundamental redesign of its digital yuan. The People's Bank of China reclassified the e-CNY from a digital cash substitute into an interest-bearing deposit. Wallet balances now earn interest and are held with authorised commercial banks, while the PBoC has folded digital yuan operations into its reserve requirement framework. This is not a minor technical tweak. It is a structural retreat. The Peterson Institute for International Economics published analysis in 2026 titled China gives up on state-backed digital cash: The US and Europe should take note. That headline tells you everything about how outside observers read Beijing's pivot. The numbers make the failure of…