China’s Evolving CBDC Architecture

China is entering a new phase in the development of its central bank digital currency (CBDC). From January 2026, holdings of the digital yuan (e-CNY) will earn interest linked to demand deposit rates, shifting the currency from digital cash to “digital deposits”. Globally, China is leading the way in large-scale CBDC deployment, while other major initiatives have progressed more gradually. The digital euro, for example, remains in a preparatory phase, with issuance unlikely before 2030, and India’s pilot programs are progressing at a more measured pace compared to China’s rapid deployment.

Interest and influence

China’s decision to make the digital yuan interest-bearing can be seen as an experiment that serves both domestic and strategic goals, although it is far from clear that it represents a coordinated geopolitical push. Domestically, one could interpret the move as an attempt to deepen the adoption of the e-CNY by improving its attractiveness relative to cash and existing digital payment instruments. Linking returns to demand deposit rates could position the digital yuan as a store of value. At the strategic level, the implications are uncertain. While some observers frame the e-CNY as a vehicle for gradual de-dollarization, the evidence points to a cautious, incremental approach rather than a concerted effort to displace the dollar. One can imagine that extensive use of the digital yuan in cross-border trade could reduce reliance on the dollar in certain corridors. More broadly, it could subtly enhance China’s domestic financial influence by offering alternative settlement infrastructure aligned with its trade networks. Whether these developments ultimately lead to a broader shift in the global monetary order remains speculative, but they do point to an emerging path through which China can influence the evolving architecture of digital money.

While some observers frame the e-CNY as a vehicle for gradual de-dollarization, the evidence points to a cautious, incremental approach rather than a concerted effort to displace the dollar.

Signals and shifts

It is possible to envisage scenarios in which the dollar’s global dominance gradually weakens, although such outcomes remain far from certain. On the one hand, internal developments in the United States, including increasing political polarization or prolonged uncertainty over trade and tariff policy, may over time affect perceptions of governance and institutional stability that support the dollar’s safe haven status. On the other hand, developments outside the US may increasingly enhance the appeal of alternative currencies. If large economies such as China were to sustain reforms and maintain macroeconomic stability, their currencies could become more credible for international use, provided they are seen as stable, reliable and sufficiently liquid to support large-scale trade and reserve demand.

Some early signs of this dynamic may already be visible, especially in contexts shaped by sanctions and geopolitical realignments. For example, a growing share of China-Russia trade is now settled in yuan and rubles, which are moving away from the US dollar. Beyond Russia, China has signed trade settlement arrangements with several Middle Eastern economies, including the UAE, Saudi Arabia and Qatar, supported by the expansion of its cross-border interbank payment system (CIPS).

Beyond energy, there are indications that yuan use in cross-border trade may gradually expand. An Indian firm reportedly used the yuan to settle coal imports from Russia, while Bangladesh opted to make payments in yuan for the construction of its nuclear power plant. Taken together, these developments may indicate a slow and uneven diversification of currency use in global trade, driven less by systemic transformation and more by pragmatic responses to evolving geopolitical and economic conditions.

Digital ambitions

CBDCs can be understood as a sovereign response to private innovation in global payments. While stablecoins promise programmable, borderless value transfer, especially for cross-border trade and settlement, CBDCs offer governments regulatory assurance, monetary sovereignty and greater control over payment systems. The newly released Action Plan for Further Strengthening the Digital RMB Management Service System aims to expand the domestic use of the e-CNY while simultaneously building the technical and institutional infrastructure necessary for scale.

The PBOC has framed the digital yuan as a tool to enhance financial inclusion and improve payment efficiency. However, critics argue that the same features that enable programmability and traceability can also expand the central bank’s capacity for financial oversight and control, raising concerns about privacy and autonomy.

In September, the People’s Bank of China took a further step by establishing the RMB International Operations Center in Shanghai. Designed as a blockchain-based services platform, the center seeks to develop on-chain settlement tools and cross-chain transfer capabilities, with the express purpose of promoting the use of the digital yuan in cross-border transactions. This indicates a shift from viewing the e-CNY as a domestic payment instrument to positioning it as a settlement layer for international trade.

The PBOC has framed the digital yuan as a tool to enhance financial inclusion and improve payment efficiency. However, critics argue that the same features that enable programmability and traceability can also expand the central bank’s capacity for financial oversight and control, raising concerns about privacy and autonomy.

China’s approach also stands in sharp contrast to developments in the United States. While cryptocurrency transactions and stablecoins remain banned in mainland China, the PBOC continues to invest heavily in a state-issued digital cash alternative that leverages blockchain infrastructure under centralized oversight. By contrast, the US has adopted a stablecoin-friendly stance. President Donald Trump issued an executive order banning the creation of a US CBDC, citing risks to financial stability, individual privacy and national sovereignty. The difference underscores a broader ideological divide: where China pursues state-led digital money as a strategic tool, the US allows private digital currencies to dominate its innovation frontier.

The difference underscores a broader ideological divide: where China pursues state-led digital money as a strategic tool, the US allows private digital currencies to dominate its innovation frontier.

CBDC Momentum

China remains one of the most advanced major economies in operationalizing a retail central bank digital currency. While many jurisdictions are still debating design choices or legislative frameworks, Beijing has already deployed institutional infrastructure and is experimenting with cross-border functionality. However, China’s international ambitions in this space have not been without setbacks. Efforts to establish a multilateral cross-border payments platform, known as mBridge, ran into difficulties last year when the Bank for International Settlements withdrew from the project. This episode highlights the geopolitical constraints that continue to shape, and in some cases limit, the global scalability of China’s digital currency ambitions.

These developments indicate that China’s CBDC project is entering a more mature phase. The decision to make the e-CNY interest-bearing could significantly strengthen its domestic appeal and accelerate adoption, although its long-term impact will only become clear over time. While it is tempting to frame the digital yuan as an explicit instrument of de-dollarization, the evidence so far points to a more incremental and uneven process. The dollar’s dominance is broken down in specific contexts and corridors, often driven by sanctions, trade frictions or transactional convenience, rather than by a coordinated shift away from the US currency.

What’s clearer is that momentum around CBDCs is building across China, India and several other jurisdictions, even as the United States takes a markedly different, private-sector-led approach to digital money. As the use of the yuan in cross-border trade and settlement expands, especially alongside new digital infrastructure, it will be important to closely monitor how payment patterns, trade relations and currency preferences evolve. Whether this indicates a structural rearrangement of the global monetary system or a short-term adjustment to current geopolitical conditions remains an open question.

Sauradeep Bag is an associate fellow with the Center for Security, Strategy and Technology at the Observer Research Foundation.

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