At this year’s Lujiazui Forum, China’s central bank governor Pan Gongsheng announced bold new steps to promote the digital yuan, China’s central bank-issued digital currency. The governor pitched the e-CNY as a pillar of a “multipolar” global monetary system, while pledging to open an international operation center for the digital unit in Shanghai.
With real-time cross-border capabilities, programmable payments and a growing network of partner banks, the e‑CNY appears to offer a modern alternative to the dollar-dominated financial architecture – at least its creators say so.
However, beneath its technological polish, the digital yuan remains tethered to the same structural constraints that have long limited the Chinese currency’s global role, namely capital controls, underdeveloped financial markets and legal institutions, and a minuscule amount of assets available for purchase.
Far from disrupting US dollar hegemony, without any broad structural reforms to the Chinese economy, the e-CNY will fare no better than its traditional counterpart, the renminbi (RMB).
To understand the challenges the e-CNY faces in becoming a currency used in international trade, it’s important to revisit the reasons for the US dollar’s hegemony. Dollar hegemony owes to two interrelated roles it plays as the currency of global trade and the world’s reserve currency.
The US dollar is the currency of trade because it is the world’s reserve currency. It is the world’s reserve currency for a few reasons: there is a seemingly endless supply of it due to the US’s large trade and federal budget deficits, an open capital account with plenty of liquid assets denominated in USD, and strong rule of law and transparent institutions.
China is arguably lacking all of these. While the Chinese debt burden has been on the rise, reaching over 300% of GDP in 2023, China still runs the world’s largest trade surplus, hitting almost US$1 trillion in 2024. Even if China demanded to trade solely with the e-CNY and all its trading partners agreed, how would the world pay for its more than 7 trillion e-CNY trade deficit with China?
Where would it be able to get e-CNY, while China sucks in more money (China’s exports) than it supplies to the world (China’s imports)? One option could be central bank currency swaps, yet no serious analysis views this as a viable or sustainable solution.
China’s trade surplus (the difference between domestic savings and domestic investment) is a symptom of its weak domestic demand (the sum of consumption and investment), which in turn is a symptom of its weak domestic consumption.
This is because the wildly successful Chinese development model worked by subsidizing businesses through direct and indirect transfers from the household sector.
This grew savings at the expense of consumption, and chronically pushed domestic production (the sum of consumption and savings) above domestic demand. While the leadership has identified boosting consumption as their number one economic priority for the year, the sheer size of China’s macroeconomic imbalance makes it a long-term problem that might take decades to solve.
However, if it’s able to bring its trade account balance into deficit and start supplying the world with e-CNY, China will run into a different issue blocking the widespread use of the digital yuan: which assets could you buy with the e-CNY? Since it is a one-for-one with the traditional RMB, a good starting point would be to assume that it could purchase any asset you can purchase with the RMB. Outside of China, the RMB cannot buy you much.
Imagine a country that runs a consistent trade surplus with China, exporting raw materials, agricultural products or manufactured goods, and receiving e-CNY (or RMB) in return. What can it actually do with the e-CNY it earns? Beyond using it to buy Chinese goods, the options quickly dwindle.
Access to Chinese equities is tightly controlled, real estate is off-limits to most foreigners and capital controls limit convertibility. The e-CNY is effectively stuck inside the Chinese financial system, with limited access for outsiders.
Holding e-CNY is like collecting tokens for a theme park where most of the rides are off-limits to non-members. Without an open capital account or deeper, more accessible financial markets, the yuan, digital or otherwise, remains of limited use to the world.
Take Saudi Arabia, for instance. It exports far more to China than it imports, meaning it likely ends up with excess RMB after each transaction. However, Riyadh cannot simply recycle that RMB into productive Chinese assets. Most of it likely gets converted into US dollars, the only currency with the global reach and investment ecosystem to absorb large trade surpluses.
This begs the question: if foreign holders cannot reinvest their yuan earnings (either RMB or e-CNY) into profitable Chinese assets, why would they keep accumulating it in the first place?
Even if foreigners could accumulate e-CNY (or RMB) easily and there could be e-CNY-denominated assets available for purchase, another roadblock that prevents widespread use of the e-CNY is the presence of strong rule-of-law safeguards and transparent institutional frameworks.
Global investors and central banks rely heavily on clear, enforceable contracts, independent judicial systems and institutions that consistently disclose their regulatory and monetary policies.
The US dollar benefits from a robust institutional architecture built over decades, including transparent central bank communications, independent auditing of financial systems and a judicial system widely regarded as impartial.
By contrast, China’s legal and regulatory frameworks governing finance remain comparatively opaque, presenting challenges for international investors seeking reliable protections for their assets.
Without substantial advances toward clearer rules, greater regulatory transparency and stronger institutional guarantees, international acceptance of the e-CNY will likely remain limited, regardless of its technological sophistication.
Heraclitus, the ancient Greek philosopher, is quoted as saying, “The only constant in life is change.” While everything discussed here holds currently, everything is subject to change.
The US is keen on cutting its trade deficit with the world, and is about to pass a new law that allows the President to tax foreign capital inflows (thereby closing its capital account a bit). And international watchdogs have noted the US might be at risk of a democratic and rule-of-law backslide under Donald Trump.
The e-CNY does not truly pose a threat to the dollar, at least in its current form. However, the changes listed previously might diminish dollar hegemony and eventually give way to a “multipolar” global monetary system.
In that future, China’s e-CNY, after reform, may find its place, not as a revolutionary replacement for the dollar, but as one currency among many in a more diversified, multipolar monetary landscape.
Anthony William Donald Anastasi is an associate professor of economics at Wenzhou Business College, Wenzhou China. His writings can be found here.
self-deluders just never learn – once upon a time not so long ago, elon musk laughed at BYD for trying to make cars …
Rather than promoting Yuan, it would be easier for China to promote HK currency for its international trade with others, backed by Yuan, gold, silver and multiple other foreign currencies, on one condition, HK currency should depeg from dollar. It is a ready currency and it will free China from the headache of letting go of control of Yuan.
This is a good idea. But perhaps it needs a shift in mindset by the real power brokers in Beijing.
Minus 5 points on your social credit score, comrade, for criticizing Winnie Xi Pooh
But no one trusts Peking who have oppressed HK
and yet, HK stock market is booming with money flowing in these days, facts still matter no? LMAO.
The U.S. dollar serves China’s needs. The two just completed a trade deal. The USA will get its rare earths and China will get chips from third countries. We need to distinguish between theatrics and outcomes.
Foriegners can do like the Chinese do; put their e-CNY in a three-year time deposit in the bank, currently earning 2.75% interest. In an economy with no or negative inflation, that represents REAL income.
Chinese don’t do that. They invest in property, which in China is collapsing
Bad habits and bad traditions endure forever. Even China wiped out its culture during the Cultural Revolution of the 1970s and replaced it with Mao-cult. So the bad tradition of totalitarian emperor persists.
As party leader and president, both for life, Xhit Cheatpig is China’s modern emperor. “Money is power.” Xhit must have full control over the yuan. Therefore, he cannot loosen it like the US does with its dollar.
Even Donut Trumpet is trying hard to undermine Jerome Powell, and he might be able to replace him, but he definitely won’t succeed in gaining full control over the dollar.
A CCP with a lenient and liberal boss is harder to expect in China than flying to the moon on a steed.
In the US theres lots of crime, lots of homelessness, lots of rubbish, lots of poverty, lots of homicides, many perpretrated by police and gangs, because bad habits and bad traditions endure forever. I wholeheartedly agree thats the american experience. Thats your experience and I don’t doubt that you feel that to be true, as many americans have lost hope and I see this in their anger and in their projection, but China its all the opposite. China’s eliminated all the above, through shear hard work and a bit of Ray ping other economies of their productive capacity. They say thank you, it was nothing personal. When you bring it over to china, the pea sants are so grateful. It couldn’t have happened to a better bunch of people. They look after their community and their neighbourhood as a result. I think you have to give Chump some credit. He’s seen what Xi did to the US for China, and he wants a bit of that success. Thats why they get on well. Chump doesn’t blame Xi. He blames Americans for letting the Raype happen. When was the last time you bought or used made in china? You know your at fault.
Typical lackey. Blind and monopolistic. Everything revolves around dollars and yuan, and then suddenly you move on to other topics like homelessness, crime, and drugs.
Okay. Then you should research drug abuse, migrant workers, and the homeless in China.
Example: Migrant workers: An article by ZHAO YIMENG, chinadaily.com.cn, May 20, 2025: “The 2024 migrant worker monitoring report showed that the total number of migrant workers across the country stood at 299.7 million, increasing 2.2 million from the previous year and marking a 0.7 percent increase.”
Do these 300 million workers have own home? Or are they subject to exploitation by the landlords like in the US?
Poverty?
Worldbank.org: “China is now an upper-middle-income country. Although China eradicated extreme poverty in 2020, an estimated 17.0 percent of the population lived on less than $6.85 a day (in 2017 PPP terms), the World Bank’s Upper-Middle-Income Country (UMIC) poverty line, in 2021.”
In any case, even the civil war in the USA didn’t claim as many lives as a single Great Leap under Mao. And that’s the difference between the “decayed” USA and “decent” China.
The U.S. dollar will not get dethroned. All the musings result from sanctioning Russia over Ukraine.
The higher prices US consumers pay at Walmart will be compensated for by tax breaks funded largely by the tariffs on the same Chinese goods they are buying. No net impact.
Chinese certainly eliminated 40m during the Grt Leap Forward
“Chinese debt burden has been on the rise, reaching over 300% of GDP in 2023”.
@Mark T: You commented on the article “Is China Finally Becoming a Consumer Power?”
>>”china will never become the kind of debt-driven ‘mega-sized consumer powerhouse’ like the US”<<
Something's not right here. Is it you or Anthony William Donald Anastasi's fault?
Dethroning the USD will not happen overnight. It will be a long process. However, we are past USD peak. Agent Orange understands this and this is why he is urging crypto USD stablecoin issuers to become bagholders for USD fiat and Treasuries. I very much doubt the crypto community will like the idea in the long term. From here onward USD market share will be devoured by blockchain currencies, CBDCs and fiat currencies like RMB. China’s depeg from the USD will need to happen first before the RMB becomes a serious alternative. The Politburo knows when such timings are to occur. When Putin suggested oil/gold backed RUB that opened the floodgates to a very good idea. Why should comodity exporters not back their notes with a fix against gold or oil, or even demand their exports be invoiced in their own currencies? Simple ideas that were considered once unthinkable are now very much possible. Ditch the USD and weaponized Western currencies and you can wave goodbye to sanctions.
When corrupt African dictators want to buy a mansion in Peking, then I’ll agree the dominance of the USD is at an end.
Blah, blah
I would be more worried about sidekick countries having trouble sourcing rare earths.
The USD will continue to be the default. Countries being excluded from swift will try to use currency swaps with countries willing to trade with them. (See Russia). U.S. sanctions policy will flip flop but the USD remains useful to many.