PBOC directs banks to expand digital yuan use in fiscal and cross-border payments
Beijing’s push to reduce reliance on Western-dominated payment systems contrasts sharply with the United States’ ban on domestic central bank digital currencies.
The People’s Bank of China is implementing a broad strategy to increase the adoption of the digital yuan across domestic sectors and international trade routes, according to industry sources. The central bank is issuing policy incentives and directives to banks to expand the use of the e-CNY in areas including lottery draws, green electricity charges and government fiscal spending.
Banks are being pressed to grow digital yuan usage in cross-border transactions, particularly along Belt and Road Initiative routes. Lenders are racing to develop compatible financial products, including loans, letters of credit and bills, to facilitate these settlements. This move aims to reduce reliance on Western-dominated payment systems and mitigate risks associated with the weaponisation of the US dollar.
The strategy stands in stark contrast to the approach taken by the United States, where President Donald Trump has embraced stablecoins while banning the domestic circulation of central bank digital currencies. Industry sources indicate that Beijing’s efforts are partly driven by a desire to ensure international trade flows continue uninterrupted during geopolitical shocks, a concern underscored by instability linked to the Middle East.
Momentum for the digital yuan has accelerated following a policy shift earlier this year that allows interest payments on holdings. In April, authorities more than doubled the number of authorised operating banks to 22. This change effectively turns the digital yuan into an on-balance sheet deposit liability for banks, boosting their incentive to promote adoption as it counts toward deposit assessment targets.
To boost domestic usage, the PBOC is testing applications using smart contracts for pilots including prepaid cards, supply chain financing and medical insurance fraud prevention. Local governments have set numerical adoption targets and are piloting internal use cases such as salary payments. Meanwhile, Shanghai’s Financial Commission Office is encouraging institutions to adopt mBridge, a platform linking China, Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia.
