Illustration: Peter C. Espina/GT

A new investment option has been made available for both individuals and companies following the central bank's recent announcement that it would allow banks to issue large-denomination certificates of deposit (CDs) to a range of non-financial investors.

To help explain the new option, which might appear too technical for many average investors, provisional regulations for management of the CDs were released last week by the People's Bank of China (PBC), the country's central bank.

Unlike ordinary deposits, the large-denomination CDs must have a minimum size of 300,000 yuan ($48,390) for individual subscribers and 10 million yuan for institutions, and they must be offered at market-determined interest rates, according to the regulations.

The CDs are also covered by the new deposit insurance scheme, which came into force in May, making them as safe for investors as ordinary bank deposits. The CDs are also tradable on the secondary market and can be mortgaged for loans, offering greater flexibility.

While investors are pondering the attractiveness of the new instrument, others have pointed out that it marks a key step toward interest rate liberalization.

Back in December 2013, when the PBC announced that banks would be allowed to issue large-denomination CDs, initially available only to other lenders in the interbank market, many market watchers said the CDs would eventually be made available to the public as well.

Therefore, rather than being brand-new, the latest announcement signifies the long-awaited expansion of an existing scheme.

Following the implementation of the deposit insurance scheme, which provides a safety net for depositors in the event of a bank failure, and the gradual raising of the deposit interest rate ceiling, which now stands at 1.5 times the benchmark rate, the latest move has been taken as symbolizing the final step before the country's interest rate mechanism is fully liberalized.

It is evident that plans to free up the interest rate mechanism have been carefully designed and it's only a matter of time before the deposit rate ceiling is removed. But the decision to allow public access to large-denomination CDs has actually come earlier than expected. Some had previously forecast that it could take several years for the scheme to be extended.

The final removal of the deposit rate ceiling is now regarded as imminent. Instead of continuing the strategy of gradually raising the ceiling, the central bank is likely to scrap it soon, Sheng Songcheng, a PBC official, was quoted as saying by China Business News on Thursday.

It's possible that the conspicuous rise of Internet-based finance in recent years might have hastened the progress toward full interest rate liberalization, something that the country has been planning since 1996.

Banks have been caught in an awkward position since the launch in the summer of 2013 of Yu'ebao, an online monetary fund partly owned by domestic e-commerce behemoth Alibaba, despite benefiting from the PBC's removal of controls on lending rates. Many average investors have already tasted the benefits of what may result from full interest rate liberalization, even without truly understanding what it means.

The availability of an increasing number of online monetary funds that offer higher yields has inevitably dimmed the appeal of bank deposits. It has also challenged banks' time-honored business model of easily gathering huge amounts of deposits and lending them out at higher rates, thus guaranteeing easy earnings.

It could be said that gone are the good old days for banks. But now, instead of spending too much time worrying about the potential profit squeeze from the complete removal of the deposit rate ceiling, banks will have to work on improving their own services to head off competition from Internet firms.

Full interest rate liberalization will present the country's banking sector with a new challenge, but there are still plenty of opportunities for growth.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn