The Bank of China plans to insure all bank deposits in the country for up to 500,000 yuan ($81,000) beginning January 2015.

Officers from central bank branches in China ironed out the implementing guidelines on the deposit insurance scheme at a conference on Thursday at Bank of China's main office in Beijing. A bank official said the plan would soon be made public.

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While bank deposit insurance have been around for decades to boost confidence in lenders and prevent a repeat of banks runs that happened during the Great Depression in the U.S. during the 1920s, the Bank of China is introducing the scheme for the first time, ironically, to place some risk into the country's financial system since all bank products are guaranteed by the Chinese government.

By placing a 500,000 yuan cap, it signals to depositors that not all their money is covered by insurance. The move has both positive and negative repercussions.

Chinese Academy of Social Sciences senior economist Zhang Ming explained, quoted by the Wall Street Journal, "A deposit-insurance system means rising chances of the government allowing bank failures in the future ... On one hand, it could enhance investor confidence because it would provide financial stability in the event of a crisis, but on the other hand, it could also introduce greater risks into the economy."

By the end of the third quarter of 2014, there are a total of 122 trillion yuan in bank deposits across China, making it one of the biggest bank-deposits globally.

The plan is part of President Xi Jinping's sweeping reforms to liberalize the country's economy by relying more on market forces and to achieve sustainable growth. The changes include a wider trading band for the Chinese currency and allowing foreigners to invest in Chinese stocks.

In turn, the deposit insurance would pave the way for another banking reform, which is lesser government control on interest rates. By spring of 2016, China would free the rates, Central Bank Gov. Zhou Xiaochuan said in early 2014. But he added that if the economy would continue to slowdown in 2015, the liberalization of interest rates could be postponed for a later date.

This week, the Bank of China cut the country's key lending rate by 0.4 percentage point to 5.6 percent for one-year lending and by 0.25 percentage point to 2.75 percent for one-year deposit rate for the first time in more than two years.

TagsBank of China, deposit insurance, interest rates, Central Bank