China digital currency: e-CNY ‘well positioned’ but still ‘a way to go’ to challenge US dollar dominance

Analysts say international adoption of the digital currency will ultimately depend on trust in Chinese institutions and markets

The e-CNY has been piloted across the country and used by tens of millions of Chinese, but overseas use has been limited

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Some 261 million digital yuan had been opened by the end of last year, with total transactions reaching 87.6 billion yuan (US$13.1 billion). Photo: Simon Song

Published: 5:53pm, 9 Jun 2022

China’s central bank digital currency has so far played only a limited role in international trade and investment, despite explosive growth in its domestic use and concern about its application in the United States, experts say.

Beijing has high hopes for the e-CNY, which has been piloted across the country and been used by tens of millions of Chinese.

Authorities are also keen to promote its use in international transactions amid risks of US financial decoupling, which could deny China access to the dollar system, and secondary sanctions on trade with countries under Western sanctions like Russia or Iran.

But Chinese policymakers have limited ability to challenge the US dollar system in the foreseeable future, analysts said.

Ultimately it depends on the trust that global participants have in China’s markets

P.S. Srinivas

“Clearly China is extremely well positioned … But on the other hand, there’s still a way to go,” said P.S. Srinivas, a visiting research professor at East Asian Institute of the National University of Singapore.

“Ultimately it depends on the trust that global participants have in China’s markets,” he told a webinar organised by the university this week.

China, which has long complained of US dollar hegemony, pioneered its research into the e-yuan – formally known as the Digital Currency Electronic Payment – with an institute chartered under the People’s Bank of China in 2016. Development was accelerated after Facebook announced its stablecoin project in 2019 that was known as Libra and has been renamed Diem.