3 - 5 minute read
China is at the forefront of the central bank digital currency (CBDC) race, having developed and tested its digital yuan or e-CNY for several years. While there hasn’t been an official launch yet, China has expanded its testing to include multiple cities and millions of people. Now, the Chinese government has announced plans to promote the use of its digital currency in cross-border trade as part of its Belt and Road initiative.
Xuzhou city, which serves as the departure point for numerous goods trains from China headed for Europe, has issued a plan promoting the use of the digital yuan in cross-border trade. The city has 18 regular cross-border rail connections to 21 nations in Asia and Europe. Xuzhou is a trade hub and plans to promote e-CNY use to pay for services and storage charges for goods carried by cross-border trains. The experiment plans to extend e-CNY usage to pay taxes and utility services in the city in the future.
Jiangsu province, where Xuzhou is located, has been quite proactive in promoting digital yuan use cases. Changshu, another city in the province, announced that it will pay civil servants and people who work for public institutions using digital yuan.
Apart from Xuzhou, the Hong Kong Monetary Authority announced that Guangdong-Hong Kong-Macau Greater Bay Area will be a testing ground for making cross-border payments using digital yuan. “The HKMA is working with mainland’s central bank, the People’s Bank of China, to test the digital yuan as a cross-border payment tool in Hong Kong,” said HKMA deputy chief executive Darryl Chan.
“The HKMA is working with mainland’s central bank, the People’s Bank of China, to test the digital yuan as a cross-border payment tool in Hong Kong,” said HKMA deputy chief executive Darryl Chan.
The Chinese government’s move to promote the use of digital yuan in cross-border trade is significant, especially as international trade markets are moving away from the standard U.S. dollar. China has completed multiple trade treaties with nations like Russia and India based on their national currency over the U.S. dollar.
With the expansion of digital yuan use cases, traders should pay attention to the potential impact of the digital currency on the market. The increased use of digital yuan in cross-border trades could lead to a decrease in the use of the U.S. dollar in international transactions. This, in turn, could affect the value of the U.S. dollar and the way traders approach currency trading.
The Bottom Line
China’s expansion of the use cases for its digital yuan is a significant move in the CBDC race. The promotion of digital yuan use in cross-border trades could lead to a shift away from the use of the U.S. dollar in international transactions. Traders should pay attention to the potential impact of the digital yuan on the market and adjust their strategies accordingly.
