The Chinese Digital Yuan Shines in Cross-Border Trade

The deployment of the Chinese digital yuan has displayed promising results in cross-border trade, particularly in a significant crude oil deal involving a major state-backed entity.

Crude Oil Transaction Settled with Digital Yuan

In a groundbreaking deal reported by China Daily, PetroChina International Corp Ltd, a state-owned company, used the central bank digital currency (CBDC) to purchase 1 million barrels of crude oil. Although the vendor’s identity was not disclosed, the transaction took place at the Shanghai Petroleum and Natural Gas Exchange (SHPGX). This deal aligns with the Shanghai municipal government’s objective of expanding the use cases of the digital yuan.

Exploring Cross-Border Functionalities

While Chinese authorities focus on promoting local retail adoption of the digital yuan, the crude oil transaction serves as an indication of their intent to explore the CBDC’s capabilities in cross-border trade. Previous experiments involving the Bank for International Settlements (BIS) and collaborations with central banks in Southeast Asia and the Gulf have also tested the digital yuan in cross-border transactions.

Cooperation with Hong Kong and the UAE

An arrangement with Hong Kong enables Chinese tourists to pay for goods and services in select regional stores using Mastercard and Visa. Additionally, the state-owned Bank of China and First Abu Dhabi Bank (FAB) have joined forces to explore the use of CBDCs in cross-border transactions, building on their existing relationship with the United Arab Emirates (UAE).

Motivations for Cross-Border Functionalities

China’s pursuit of cross-border functionalities for the digital yuan is driven by two primary factors. Firstly, it aims to reduce the cost and delays associated with international remittances. Secondly, the country wants to decrease its reliance on the U.S. dollar in global trade. China has already made progress in reducing its dependency on the U.S. dollar, as evident in recent cross-border transactions and the growing use of the yuan for international trade.

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Competing in Mainland China

Prior to its official launch, the PBoC anticipates tough competition from existing payment systems in China, such as Alipay, WeChat Pay, and UnionPay. To address this, the PBoC is actively rolling out new digital yuan mobile app features, including offline payments, securities deployments, and smart contracts. The addition of a contactless payment feature and exploration into cross-border payments will give the digital yuan a competitive edge.

Conclusion

The Chinese digital yuan has demonstrated its potential in cross-border trade, a promising development for the country’s ambitions. As China strives to reduce its dependence on the U.S. dollar and enhance international remittances, the digital yuan’s applications continue to expand.

Learn More About Central Bank Digital Currencies

To explore central bank digital currencies further and understand the design decisions involved in their creation and launch, read nChain’s CBDC playbook.



### News source: coingeek.com

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