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?
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