China’s Evolving CBDC Architecture

China’s interest-bearing digital yuan marks a shift toward digital deposits, potentially boosting domestic uptake and modestly expanding its cross-border role without challenging the US dollar

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 toward “digital deposits.” Globally, China continues to lead in large-scale CBDC deployment, while other major initiatives have progressed more gradually. The digital euro, for instance, remains in a preparatory phase, with issuance unlikely before 2030, and India’s pilot programmes are advancing at a more measured pace compared with China’s rapid rollout.

Interest and Influence

China’s decision to make the digital yuan interest-bearing could be seen as an experiment that serves both domestic and strategic ends, though it is far from clear that it represents a coordinated geopolitical push. Domestically, one might interpret the move as an attempt to deepen adoption of the e-CNY by enhancing 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-dollarisation, the evidence suggests a cautious, incremental approach rather than a concerted effort to displace the dollar. One could imagine that expanded use of the digital yuan in cross-border trade might reduce reliance on the dollar in certain corridors. More broadly, it could subtly enhance China’s regional financial influence by offering alternative settlement infrastructure aligned with its trade networks. Whether these developments eventually lead to a broader shift in the global monetary order remains speculative, but they do point to an emerging pathway through which China might influence the evolving architecture of digital money.

While some observers frame the e-CNY as a vehicle for gradual de-dollarisation, the evidence suggests 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 rising political polarisation or prolonged uncertainty around trade and tariff policy, could over time affect perceptions of governance and institutional stability that underpin the dollar’s safe-haven status. On the other hand, developments outside the US could incrementally 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 perceived as stable, reliable, and sufficiently liquid to support large-scale trade and reserve demand.

Some early signs of this dynamic may already be visible, particularly in contexts shaped by sanctions and geopolitical realignments. For instance, a growing share of China–Russia trade is now settled in yuan and roubles, shifting 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 usage in cross-border trade could be expanding incrementally. 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 could point to a slow and uneven diversification of currency usage 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, particularly for cross-border trade and settlement, CBDCs offer governments regulatory assurance, monetary sovereignty, and greater control over payment systems. The newly released Action Plan on 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 required for scale.

The PBOC has framed the digital yuan as a tool for enhancing financial inclusion and improving payment efficiency. However, critics argue that the same features that enable programmability and traceability could also expand the central bank’s capacity for financial surveillance 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 centre seeks to develop on-chain settlement tools and cross-chain transfer capabilities, with the explicit goal of promoting the use of the digital yuan in cross-border transactions. This signals a shift from viewing the e-CNY as a domestic payments instrument towards positioning it as a settlement layer for international trade.

The PBOC has framed the digital yuan as a tool for enhancing financial inclusion and improving payment efficiency. However, critics argue that the same features that enable programmability and traceability could also expand the central bank’s capacity for financial surveillance 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 centralised oversight. By contrast, the US has adopted a stablecoin-friendly posture. President Donald Trump has issued an executive order prohibiting the creation of a US CBDC, citing risks to financial stability, individual privacy, and national sovereignty. The divergence underscores a broader ideological split: where China is pursuing state-led digital money as a strategic instrument, the US is allowing private digital currencies to dominate its innovation frontier.

The divergence underscores a broader ideological split: where China is pursuing state-led digital money as a strategic instrument, the US is allowing private digital currencies to dominate its innovation frontier.

CBDC Momentum

China remains among the most advanced major economies in operationalising 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 payment platform, known as mBridge, encountered 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 suggest that China’s CBDC project is entering a more mature phase. The decision to make the e-CNY interest-bearing could meaningfully strengthen its domestic appeal and accelerate adoption, although its longer-term impact will only become clear over time. While it is tempting to frame the digital yuan as an explicit instrument of de-dollarisation, the evidence so far points to a more incremental and uneven process. The dollar’s dominance is being chipped at 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 is clearer is that momentum around CBDCs is building across China, India, and several other jurisdictions, even as the United States pursues a markedly different, private-sector-led approach to digital money. As the use of the yuan in cross-border trade and settlement expands, particularly alongside new digital infrastructure, it will be important to closely watch how payment patterns, trade relationships, and currency preferences evolve. Whether this marks a structural reordering of the global monetary system or a short-term adaptation to current geopolitical conditions remains an open question.

This commentary originally appeared in Observer Research Foundation.