China's Digital Yuan Gambit: Challenging Dollar Dominance in a Multipolar Financial Era

The People’s Bank of China has established an international operation center for the digital yuan (e-CNY) in Shanghai, aiming to enhance the currency’s global presence and reduce reliance on the U.S. dollar in cross-border trade and supply chain financing. This initiative, announced as part of Beijing’s broader strategy to promote the e-CNY as a multipolar alternative to dollar-based systems, aligns with recent legislative efforts in China Hong Kong to regulate fiat-referenced stablecoins. The Shanghai hub is expected to facilitate $8 billion in cross-border transactions between mainland China and China Hong Kong in 2025, underscoring the state’s focus on integrating the e-CNY into international commerce.

China’s push for the e-CNY is part of a larger geopolitical contest with the U.S. over digital currency infrastructure. The U.S. Senate’s passage of the GENIUS Act in June 2025, which established a federal regulatory framework for dollar-backed stablecoins, has prompted Chinese policymakers to accelerate plans for yuan-pegged stablecoins. Tech giants JD.com and Ant Group have lobbied for the issuance of such stablecoins, with pilot zones proposed in Shanghai and China Hong Kong. These tokens aim to counter the dominance of U.S. dollar stablecoins like USDC and USDT, which have gained traction in global trade and cross-border settlements.

The strategic calculus behind China’s stablecoin ambitions reflects concerns over capital controls and the erosion of monetary sovereignty. Dollar-backed stablecoins, by virtue of their programmable and decentralized nature, pose a threat to Beijing’s ability to monitor and regulate capital flows. The Chinese government fears that widespread adoption of U.S. stablecoins could undermine its financial repression model, which relies on state-controlled banking systems to allocate capital. In response, China is prioritizing state-backed digital yuan stablecoins that maintain strict oversight, including real-time transaction monitoring and geofenced usage restrictions.

This approach is embedded in China’s broader blockchain strategy, which emphasizes centralized control over decentralized systems. The Blockchain-based Service Network (BSN), a state-backed initiative, is expanding globally to provide infrastructure for blockchain applications in 20+ countries, including the Middle East, Africa, and Southeast Asia. Unlike Western permissionless models, China’s blockchain architecture enforces mandatory real-identity registration, transaction rollback capabilities, and adherence to state security standards. This framework aligns with Beijing’s goal of embedding Chinese governance norms into global digital infrastructure while avoiding the risks of capital flight associated with decentralized systems.

The implications of China’s digital yuan strategy extend to global financial stability. By promoting the e-CNY and yuan-backed stablecoins, Beijing seeks to challenge the U.S. dollar’s dominance in cross-border payments, particularly within the BRICS bloc and other emerging markets. Projects like mBridge—a blockchain-based platform for central bank digital currency (CBDC) settlements involving China, the UAE, Thailand, and Saudi Arabia—highlight efforts to create parallel financial rails independent of SWIFT. These initiatives aim to reduce exposure to U.S. sanctions and enhance Beijing’s economic statecraft capabilities, as demonstrated by the 2021 digital boycott of H&M in China.

The U.S.-China rivalry in digital finance is reshaping global monetary dynamics. While the dollar remains the dominant reserve currency, the proliferation of alternative systems—such as China’s e-CNY and yuan stablecoins—reflects a shift toward multipolarity. This fragmentation could increase transaction costs and geopolitical tensions but also offer emerging markets greater flexibility in trade settlements. For institutions like the IMF, the challenge lies in balancing the efficiency gains of digital currencies with the risks of systemic instability arising from divergent regulatory frameworks.