May 30 (Reuters) – China’s central bank is embarking on a broad push to increase the use of digital yuan at home and abroad, putting Beijing on a different and potentially rival path from the United States in shaping the future of currency, various industry sources said.
In a series of measures, many of which are announced here for the first time, the People’s Bank of China (PBOC) is giving policy incentives to banks and behind-the-scenes directives to expand the use of the digital yuan, also known as e-CNY, in areas ranging from lottery draws to green electricity fees to financial spending.
Sources said banks are being pressured to increase the use of digital yuan in cross-border transactions, especially along Belt and Road Initiative routes, and lenders are racing to develop compatible products such as loans, letters of credit and invoices.
All the sources declined to be named because they were not authorized to speak to the media.
PBOC did not respond to Reuters’ request for comment.
China’s bet on the digital yuan stands in stark contrast to the United States, where President Donald Trump has embraced stablecoins while banning the domestic circulation of central bank digital currencies.
Some industry sources said Beijing’s move was motivated in part by a desire to reduce its dependence on a global payments system dominated by Western institutions and dependent on the dollar as the world’s reserve currency.
The digital yuan serves as a technological underpinning to help ensure China’s international trade flows continue uninterrupted during future geopolitical shocks, a concern underscored by external instability linked to the Middle East war, one industry source said.
Broker China Securities Co. “The war has exposed the risks of weaponization of the dollar and highlighted the urgent need for dedollarization among Middle East oil producers,” one report said, adding that the Iran conflict had accelerated the internationalization of the yuan. he said.
As a result, it was stated that the global influence of the yuan could expand “from trade to the geopolitical sphere”.
SMALL BASE, BIG GOALS
Of course, the digital yuan is starting from a low base and faces structural limits on how far it can expand.
According to the latest official data, cumulative digital yuan transactions reached 16.7 trillion yuan ($2.47 trillion) as of November since its debut in 2019, compared to 279 trillion yuan in China’s UnionPay card transactions in 2025 alone.
“China and the US are the two locomotives of the global economy and both are pushing their own standards” in cross-border digital payment, said Xin Yan, CEO of Sign, which creates digital infrastructure for governments and institutions.
Xin added that China’s digital yuan is more compatible with the banking system but “is not suitable for foreigners.”
The latest move gained momentum when China began allowing interest payments on digital yuan assets in a major policy change earlier this year. In April, authorities more than doubled the number of authorized operating banks to 22.
Industry sources and analysts said the move effectively turns the digital yuan into an on-balance sheet deposit liability for banks, significantly increasing incentives to encourage adoption as it addresses deposit valuation targets and enables the development of more credit and asset management products.
A fintech industry expert who provides IT services to banks said the Chinese government appears to be “serious this time” about driving wider adoption of digital currency, although progress has been slow in recent years.
PIANO DRAW, FINANCIAL IRRIGATION
Digital yuan deposit balances and account numbers are now key criteria for evaluating banks, the person said, adding that the goal is to create a critical mass and an ecosystem that attracts broader participation.
To increase domestic use, PBOC is testing apps that use “smart contracts,” built-in programs that trigger automatic payments when predefined conditions are met.
Industry sources said the pilots include lottery draws, prepaid cards, government fiscal spending and supply chain financing.
Authorities are also testing the digital yuan to thwart health insurance fraud and track green electricity consumption, leveraging its ability to precisely track money flows, the sources said.
Local governments are setting digital adoption targets and testing internal use cases including payroll and healthcare expenses, a person at a payments company said.
The PBOC is also considering establishing a clearinghouse similar to China UnionPay to process digital yuan transactions between all operating banks and improve efficiency, sources said. These uses have not been previously reported.
CROSSBORDER BARRIERS
Industry sources said the digital yuan is unlikely to disrupt retail payment behavior dominated by Alipay and WeChat Pay, and its ultimate goal is focused on international settlement between businesses. However, expanding abroad creates even greater difficulties.
Shanghai Financial Commission Office official Zhou Xiaoquan said the city is encouraging institutions to adopt mBridge, a central bank-backed platform connecting China, Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia.
Relevant business practices currently include trade in goods and services as well as transportation insurance, he said at a conference last month.
Cross-border payments with ASEAN countries are a big priority, but the main hurdle is that overseas counterparties have shown limited willingness to adopt the digital yuan, said one industry source briefed on regulators’ thinking.
For yuan internationalization to gain traction, overseas parties must be willing to use it, the source said, warning that it still has “a long road ahead.”
(Reporting by Reuters Staff; Editing by Sumeet Chatterjee, Paritosh Bansal and Shri Navaratnam)
