Main Points:
- Establishment of an international e-CNY operations centre in Shanghai to facilitate global CBDC settlement.
- Governor Pan Gongsheng’s advocacy for a multi-polar currency system to reduce overreliance on the U.S. dollar.
- Upgrades to China’s Cross-Border Interbank Payment System (CIPS) and collaboration with foreign banks for yuan-based settlements.
- The evolving global CBDC landscape: progress on the EU’s digital euro, UAE’s digital dirham rollout, and Israel’s digital shekel design.
- Competition and convergence with stablecoins: Hong Kong’s new licensing regime and the emergence of dirham-backed and shekel-backed digital assets.
- Regulatory, technical, and geopolitical hurdles shaping CBDC adoption worldwide.
1. PBOC’s Strategic Expansion of the Digital Yuan
At the recent Lujiazui Forum in Shanghai, People’s Bank of China (PBOC) Governor Pan Gongsheng reaffirmed Beijing’s commitment to scaling up its central bank digital currency (CBDC), the digital renminbi (e-CNY), on the world stage. As part of this initiative, China will establish a dedicated International e-CNY Operations Centre in Shanghai, designed to serve as a hub for cross-border CBDC settlements and to onboard global participants into its network.
By centralising international operations, the PBOC aims to streamline liquidity management, provide real-time settlement capabilities, and demonstrate the technical maturity of the e-CNY platform. This centre will also support the integration of corporate and institutional users, fostering wider adoption among import-export firms, asset managers, and financial market infrastructure providers.
2. Advocacy for a Multi-Polar Currency System
Governor Pan characterised the current global monetary order as excessively “unipolar,” dominated by the U.S. dollar, which he argued poses systemic vulnerabilities during geopolitical disputes. He proposed a multi-polar currency framework, wherein multiple sovereign currencies—including the renminbi, euro, and others—co-exist and underpin international trade and finance.
Pan highlighted that events such as sudden shifts in U.S. tariff policies have dented investor confidence in dollar-based assets this year, creating openings for alternative reserve currencies. A diversified currency system, he maintains, would mitigate the risks of unilateral sanctions and “weaponisation” of payment rails, thereby enhancing the resilience of global trade.
3. Upgrading Cross-Border Infrastructure: CIPS and Beyond
To complement the digital yuan, China continues to expand its Cross-Border Interbank Payment System (CIPS), an alternative to SWIFT for yuan-denominated settlements. Six foreign banks—among them Standard Bank and First Abu Dhabi Bank—have committed to adopting CIPS, which now supports a broader corridor of trading partners.
By pairing the digital yuan’s instantaneous settlement with CIPS’s liquidity pools, the PBOC envisions a seamless two-layer ecosystem:
- On-chain transfers via e-CNY for retail and institutional transactions.
- Off-chain settlement through CIPS for high-value wholesale flows.
This dual approach addresses both retail micropayments and large-ticket cross-border transfers, positioning China at the forefront of CBDC-enabled interlinkages.
4. CBDCs vs. Stablecoins: The Contest for Digital Payment Supremacy
While CBDCs are state-sponsored digital currencies, stablecoins—often pegged to the U.S. dollar—have rapidly gained traction as borderless payment instruments. Many market participants have embraced dollar-referenced stablecoins to bypass conventional remittance channels, citing lower costs and faster speeds.
In Hong Kong, regulators recently enacted a stablecoin licensing bill, establishing clear requirements for fiat-backed issuers and setting the stage for large banks and fintech firms to launch regulated stablecoins in the SAR by late 2025. At the same time, the UAE is not only planning a digital dirham retail CBDC but is concurrently developing “AE Coin,” a dirham-backed stablecoin by International Holding Company, ADQ, and First Abu Dhabi Bank, pending Central Bank of the UAE approval.
This parallel development underscores a broader dynamic: central banks are racing to harness the programmability, security, and policy-aligned features of CBDCs, while private issuers leverage agile stablecoin rails to capture market share in cross-border payment corridors.
5. Regional CBDC Developments and Timelines
European Union: Digital Euro Preparation
The European Central Bank’s digital euro initiative, now in its preparation phase, is expected to publish its next progress report in Q2 2025. Policymakers, including Fabio Panetta, argue that a digital euro is vital for “digital sovereignty” and to modernise euro-area payments without destabilising bank liquidity.
To cap retail holdings and safeguard commercial banks, the ECB will impose conservative limits on individual digital euro accounts, assuring that total banking system deposits remain intact.
United Arab Emirates: Digital Dirham Rollout
In the Middle East, the Central Bank of the UAE has confirmed plans to launch its retail digital dirham in the fourth quarter of 2025, targeting improved cashless infrastructure and enhanced AML/CFT controls through blockchain auditability.
Israel: Digital Shekel Design Challenge
The Bank of Israel released its preliminary design document for a digital shekel on March 3, 2025, outlining possible user journeys, security architectures, and governance frameworks. It has invited industry and academic feedback via a “Digital Shekel Challenge,” reflecting an open-innovation approach inspired by BIS pilot programs.
6. Regulatory and Adoption Challenges
Despite growing interest—81% of central banks surveyed by OMFIF expect to issue a CBDC eventually—31% have postponed launch plans, citing regulatory uncertainty and strained economic backdrops. Key obstacles include:
- Privacy vs. Surveillance: Balancing user confidentiality with AML/CFT obligations.
- Technical Interoperability: Ensuring seamless links between diverse CBDC platforms and existing payment rails.
- Financial Stability Risks: Preventing digital bank runs if retail CBDCs become too attractive compared to commercial deposits.
- Geopolitical Friction: Navigating sanctions regimes and ensuring universal access without contravening export controls.
Addressing these challenges will require collaborative standards—perhaps under BIS and IMF auspices—and multilateral agreements on cross-border regulatory reciprocity.
Conclusion
China’s push to internationalise the digital yuan, anchored by a new operations centre in Shanghai and bolstered by CIPS expansion, exemplifies a broader shift toward a multi-polar currency order. As geopolitical tensions persist and digital payments proliferate, sovereign CBDCs and privately issued stablecoins will vie for supremacy in cross-border commerce. In this dynamic landscape, the EU’s digital euro, the UAE’s dirham CBDC, and Israel’s digital shekel prototypes illustrate diverse approaches to marrying technology, policy, and stability. For investors and blockchain practitioners seeking the next frontier—whether new crypto assets, DeFi integrations, or institutional infrastructure—this era of CBDC experimentation offers both opportunities and puzzles. The ultimate winners will be those who combine robust compliance frameworks, user-centric design, and true interoperability across borders.
