The relentless implementation of the digital yuan
Since its launch in 2020, the introduction of the digital yuan continues to gain momentum when this October it was used, for the first time, to settle cross-border oil transactions. It is now set to make another leap forward by integrating into the commodities and services trade with Hong Kong.
Emerging economies have pioneered the adoption of central bank digital currencies (CBDCs) under the premise of expanding access to financial services and digitising their economies, while neglecting to mention that, unlike cryptocurrencies, they also increase their ability to track and control their citizens.
However, in China’s case, there is also the need to create an alternative to the global monetary system, now based on the hegemony of the dollar and dominated by Western financial institutions, to shield its economy from US sanctions, in this case, through de-dollarisation.
In this context, and as the world moves towards the seemingly unstoppable adoption of digital currencies, the Chinese digital yuan, known as e-CNY, has moved to the forefront of CBDCs. Since its launch in 2020 and after a slow start, adoption of the Chinese digital currency has accelerated rapidly, with nearly 6 million registered merchants who use the new currency in more than 26 cities serving as test beds across the country.
Former People’s Bank of China (PBOC) governor Yi Gang stated in July that total transactions had achieved a cumulative value of 1.8 trillion yuan (234 billion euros) by the end of June 2023, with 120 million digital wallets fully operational.
Used for the first time to settle an oil transaction
As announced by the Shanghai Oil and Natural Gas Exchange (SHPGX), the digital yuan was used for the first time to settle an oil transaction when state-owned Petro China International Corporation bought 1 million barrels of crude oil on 19 October.
The seller and price of the transaction were not disclosed. Still, the move comes in response to a request by the Shanghai Municipal Party Committee and Municipal Government to apply the Chinese central bank’s digital currency to international trade, according to Shanghai Stock Exchange officials. The transaction came the day after China National Offshore Oil Corp and France’s Engie closed a yuan-settled liquefied natural gas deal on the same SHPGX.
These transactions represent a major step in the use of the yuan in the international market and further boost the global trend towards de-dollarisation spurred by Russia and China. China Daily reported that in the first three quarters of 2023, the use of the yuan in cross-border settlements rose by 35% year-on-year to 1.3 trillion euros.
The news comes shortly after Hong Kong announced that it is preparing to test the integration of the Chinese digital yuan with its domestic fast payment system (FPS) while promoting its integration to settle commodity and services transactions. These developments make it clear that, despite the initial domestic focus of the Chinese CBDC project, the e-CNY is establishing itself as the most advanced centralised digital currency in international transactions.
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