The global financial landscape is undergoing a significant transformation, with central bank digital currencies (CBDCs) emerging as a key area of innovation. Among these, China's digital yuan, or e-CNY, stands out as the first digital currency issued by a major economy, signaling a potential shift in international trade and finance. This report provides a comprehensive analysis of the e-CNY's role in international trade, its underlying payment infrastructures such as mBridge and CIPS, its comparison with traditional systems like SWIFT, China's currency control mechanisms, the implications for the RMB's status as a global reserve currency, and the broader geopolitical context driving these developments. The findings suggest that while the e-CNY offers notable advantages in efficiency and cost, its path to widespread international adoption and reserve currency status is complex and faces considerable hurdles related to China's capital controls and the entrenched dominance of the US dollar. Nevertheless, the initiatives undertaken by China, along with the growing interest among other nations and blocs like BRICS in alternative payment systems, indicate a move towards a more multipolar global financial order.
II. Introduction: The Rise of Digital Currencies and China's e-CNY
The world is witnessing a growing interest in central bank digital currencies (CBDCs), with 134 countries, representing 98% of global GDP, now exploring their potential.1 This movement reflects a global acknowledgment of the increasing digitalization of economies and the need for central banks to adapt to this evolving landscape. Among the various CBDC projects worldwide, China's e-CNY has garnered significant attention as the first digital currency to be issued by a major economy.3
China's foray into the realm of digital currencies began with initial pilot programs launched in 2020, which have since expanded to cover a substantial portion of the country.2 The development and implementation of the e-CNY are deeply intertwined with China's broader economic and strategic objectives. These goals include enhancing its financial sovereignty, fostering the internationalization of its currency, the renminbi (RMB), and providing a state-backed alternative to both traditional payment systems and private cryptocurrencies.5
The rapid progress of China's e-CNY project, especially when compared to the more cautious and research-oriented approaches of other major economies, suggests a deliberate strategy to gain a first-mover advantage in the digital currency space. This early lead could potentially position China to influence the establishment of global standards and norms for digital currencies, thereby shaping the future of international finance.6
III. The Role of China's e-CNY in International Trade
While the e-CNY was initially conceived and primarily designed for domestic retail payments, its technical architecture has always considered the possibility of cross-border applications.2 Although its current usage remains predominantly within China, several pilot programs and strategic initiatives are exploring its potential in international trade. One significant development is the expansion of e-CNY pilot programs to Hong Kong, a major offshore RMB center, to facilitate cross-boundary payments.5 This allows Hong Kong residents to set up and use e-CNY wallets for transactions in both Hong Kong and mainland China.
Furthermore, the e-CNY is being integrated into multi-CBDC platforms like Project mBridge.1 This collaborative effort, involving the central banks of China, Thailand, the United Arab Emirates, Hong Kong, and Saudi Arabia, aims to create a common infrastructure for cross-border wholesale payments. The e-CNY serves as China's digital currency within this platform. Beyond these initiatives, there have been discussions and pilot projects exploring the use of e-CNY along the Belt and Road Initiative (BRI) 8, with potential applications in loans and development assistance to partner countries. Specific instances, such as the successful real-time settlement between Hong Kong and Abu Dhabi using digital RMB 14 and Thailand's completion of its first oil trade settled in digital yuan 14, further illustrate the e-CNY's growing role in international transactions.
The e-CNY offers several potential efficiency and cost advantages over traditional international payment systems, most notably the SWIFT system. Pilot projects have demonstrated significantly faster settlement times, with transactions settling in seconds compared to the 3-5 days often required by SWIFT.12 Moreover, transaction costs have been drastically reduced, as seen in the Hong Kong-Abu Dhabi pilot where fees were slashed by 98%.14 The People's Bank of China (PBoC) estimates that businesses using RMB for cross-border settlements could potentially save up to 3% in hidden costs.16 By facilitating direct payments and reducing the need for multiple correspondent banks, the e-CNY promises a more streamlined and cost-effective approach to international trade finance.14 These substantial benefits could provide a compelling incentive for emerging markets and strategic trade partners to increasingly adopt the e-CNY for their international transactions.14
IV. Key Payment Infrastructures for Cross-Border RMB Transactions
The international use of the e-CNY is closely linked to the development and adoption of key payment infrastructures that facilitate cross-border transactions in RMB. Two prominent systems in this regard are Project mBridge and the Cross-Border Interbank Payment System (CIPS).
Project mBridge represents a significant initiative in the realm of multi-CBDC platforms. It is a collaborative effort led by the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre, along with the central banks of China, Thailand, the United Arab Emirates, Hong Kong, and more recently, Saudi Arabia.1The platform is built on distributed ledger technology (DLT), enabling real-time, peer-to-peer cross-border payments and foreign exchange transactions using the digital currencies issued by the participating central banks.18 The e-CNY is seamlessly integrated into the mBridge platform as the digital form of the Chinese currency.23 The platform's technical design is also compatible with the Ethereum Virtual Machine (EVM), allowing for the integration of add-on technology solutions and enhancing interoperability with other platforms.20 The utilization of DLT in mBridge offers the potential for increased transparency, enhanced security, and greater efficiency in cross-border payments, potentially circumventing the traditional reliance on correspondent banking networks.18
Project mBridge has successfully completed several pilot phases involving real-value transactions conducted by commercial banks from the participating jurisdictions.19 These pilots have demonstrated the platform's ability to achieve faster transaction times, with settlements occurring in as little as sub-10 seconds, and to significantly reduce the costs associated with cross-border payments.15 In mid-2024, mBridge reached the Minimum Viable Product (MVP) stage 1, signifying its readiness for real-value transactions, subject to the preparedness of each jurisdiction. Furthermore, there is potential for the mBridge platform to evolve into an infrastructure that can support domestic CBDCs, should individual jurisdictions decide to pursue this direction.24 The successful progression to the MVP stage indicates the practical viability of mBridge as a functional alternative for cross-border payments, with the potential for future expansion to include more countries and a wider adoption by financial institutions.1
The Cross-Border Interbank Payment System (CIPS) is another critical payment infrastructure for RMB transactions. Backed by the People's Bank of China (PBOC), CIPS offers clearing and settlement services specifically for cross-border RMB payments and trade.17 While CIPS has its own messaging system, it still relies on SWIFT's messaging service for a significant portion of its transactions, estimated to be over 80%.30 CIPS supports a wide range of cross-border RMB business, including trade in goods and services, cross-border direct investment, financing, and individual remittances.30 It operates as a Real-Time Gross Settlement (RTGS) system, ensuring that RMB payments are settled continuously and irrevocably in real-time.33 There is also the potential for CIPS to process digital yuan transactions for cross-border trade, although the provided research material offers limited details on the specific technical integration between the two.34 Despite its aim to be an alternative, CIPS's reliance on SWIFT for messaging underscores the deeply entrenched nature of the existing global financial communication infrastructure.30
CIPS was established in 2015 as a key component of China's broader policy to internationalize the RMB.30By providing a direct onshore clearing mechanism for RMB transactions, CIPS makes these transactions faster and more cost-effective compared to traditional correspondent banking routes.17 The system has seen a growing number of participating financial institutions from various countries 30, indicating an increasing global acceptance of the RMB as a currency for trade. CIPS has also engaged in strategic collaborations with SWIFT through Memorandums of Understanding (MOUs) to expand its global reach and enhance China's financial influence through SWIFT's extensive network.30 Therefore, CIPS serves as a crucial instrument in promoting the RMB's use in international trade by offering a dedicated infrastructure and reducing the necessity of using the US dollar as an intermediary currency for RMB transactions.17
V. Comparative Analysis: CIPS vs. SWIFT
A comparative analysis of CIPS and SWIFT reveals distinct advantages and disadvantages for each system. CIPS offers the advantage of faster settlement times specifically for RMB transactions, with the potential for same-day completion in many cases.17 It also provides reduced costs for RMB payments by eliminating the need for intermediary banks, especially when the transaction is conducted in Chinese yuan.17 Furthermore, CIPS facilitates direct payments in yuan, which can benefit companies by avoiding foreign exchange fees associated with converting to other currencies.17 From a strategic perspective, CIPS enhances China's financial sovereignty and reduces its dependence on US dollar-backed financial systems.38 However, CIPS has a more limited global coverage compared to SWIFT's extensive network, which connects financial institutions across more than 200 countries.39 CIPS is also primarily focused on RMB transactions, making it less versatile for payments in other currencies.41 Despite having its own messaging capabilities, CIPS still relies on SWIFT for a significant portion of its messaging infrastructure.30 Additionally, while it is expanding, CIPS's operational hours are primarily aligned with Chinese business hours.17 Finally, the governance of CIPS is under the People's Bank of China (PBOC), which might raise concerns for some international participants regarding potential political influence.
In contrast, SWIFT boasts an extensive global network, connecting over 11,000 financial institutions in more than 200 countries.12 It supports a wide range of financial transactions in virtually all global currencies.17SWIFT is a highly regulated system, providing robust security measures against fraud and errors.39 It is also a well-established and trusted system for international payments, having served as the backbone of global finance for decades.12 However, SWIFT is often criticized for its slower processing times for international transfers, which can take 2 to 5 business days.12 It also tends to have higher costs due to fees charged by intermediary banks and other additional charges.12 A significant disadvantage of SWIFT, particularly in the current geopolitical climate, is its potential to be used as a tool for financial sanctions, leading to disruptions in international financial flows.12 Furthermore, SWIFT lacks real-time transparency in tracking the exact status of a payment transfer, which can make financial planning and reconciliation difficult for businesses.12SWIFT operates as a member-owned cooperative under Belgian law and is overseen by the central banks of the G-10 countries and the European Central Bank.34
The choice between CIPS and SWIFT ultimately depends on the specific requirements of the transaction. For businesses engaged in significant trade with China and preferring to transact in RMB, CIPS offers notable advantages in terms of speed and cost. However, for entities with diverse currency needs and a global network of partners, SWIFT's broader reach and currency support may still be more suitable.
| Feature | CIPS | SWIFT |
| Primary Function | Payment system for cross-border RMB transactions | Messaging network for international financial transactions |
| Currency Focus | Primarily RMB, some support for other currencies | Wide range of global currencies |
| Settlement | Real-time or near real-time settlement of RMB payments | Does not directly settle payments |
| Speed | Faster for RMB transactions | Slower, 2-5 business days |
| Cost | Lower for RMB transactions | Higher, includes intermediary fees |
| Global Reach | Growing, but more limited than SWIFT | Extensive, over 11,000 institutions in 200+ countries |
| Messaging | Has own system but relies on SWIFT for significant portion | Primarily a messaging network |
| Sanction Resilience | Offers some resilience for RMB transactions | Vulnerable to political influence and sanctions |
| Operating Hours | Primarily Chinese business hours, extending | 24/7 operation |
| Governance | Under People's Bank of China (PBOC) | Member-owned cooperative under Belgian law, overseen by G-10 central banks |
VI. Alternative International Payment Systems Beyond SWIFT and CIPS
Beyond SWIFT and CIPS, a variety of other international payment systems are either established or emerging. These alternatives are driven by the need to address the limitations of SWIFT and to cater to specific regional or technological requirements. Domestic payment networks such as ACH in the United States, SEPA in Europe, Faster Payments in the UK, PayNow in Singapore, and UPI in India 41 are often utilized for cross-border payments under specific conditions, particularly for regional transactions or those involving specific currencies. Blockchain-based networks like RippleNet, Stellar, and Bitcoin Lightning Network 41 offer the potential for faster and lower-cost international transfers by leveraging distributed ledger technology, although they face challenges related to regulatory acceptance and widespread adoption. Fintech providers such as Papaya Global, Airwallex, Nium, and Wise 41 are also playing an increasingly significant role by offering streamlined cross-border payment solutions, often by utilizing local payment networks and providing enhanced transparency and cost-effectiveness.
Several countries have also developed their own national payment systems as alternatives to SWIFT. Russia's SPFS (System for Transfer of Financial Messages) 40 was created by its central bank as a response to potential exclusion from SWIFT and is primarily used within Russia and by some of its partner countries. India has its own system called SFMS (Structured Financial Messaging System), which has the potential for facilitating cross-border transactions. The BRICS nations have proposed the development of BRICS Pay 46, a decentralized payment system intended to allow member countries to trade using their local currencies, potentially incorporating blockchain technology. On the other hand, INSTEX (Instrument in Support of Trade Exchanges) 49 was established by the European Union to facilitate trade with Iran while circumventing US sanctions, but it proved largely ineffective and was eventually liquidated. The increasing number and diversity of these SWIFT alternatives indicate a global trend towards seeking faster, cheaper, more transparent, and politically independent payment solutions, fueled by advancements in technology and evolving geopolitical landscapes.41
VII. China's Currency Control Mechanisms and Their Impact on RMB Circulation
The circulation of the RMB is subject to a complex set of controls implemented by the Chinese government. A key aspect of this is the distinction between onshore RMB (CNY), which is traded within mainland China under strict governmental oversight, and offshore RMB (CNH), which circulates outside of mainland China with greater flexibility.51 The People's Bank of China (PBOC) tightly manages the exchange rate of CNY, while the value of CNH is determined more freely by market forces, which can at times lead to a divergence in their exchange rates.52 Currently, the scale of the offshore RMB market (CNH) remains limited when compared to the onshore market (CNY).55
China maintains a "closed" capital account, meaning that the flow of foreign exchange into and out of the country is strictly regulated by the PBOC and the State Administration of Foreign Exchange (SAFE).56These control mechanisms include stringent rules governing the movement of capital, mandatory reporting requirements for overseas payments exceeding a certain threshold, and annual limits on the amount of foreign exchange that individuals can purchase.56 The PBOC also actively intervenes in the foreign exchange market to manage the RMB's exchange rate, operating a "managed float" system and setting a daily reference rate or fixing.60 Additionally, the PBOC utilizes state-owned banks to conduct indirect interventions in the market to further influence the exchange rate.63 The primary rationale behind these strict capital controls is to safeguard domestic financial stability, prevent large-scale capital flight, and maintain control over China's monetary policy and the value of its currency.58 China's economic development model has historically relied on these controls to channel domestic savings towards strategic sectors and to manage its currency in alignment with its broader economic objectives.58
VIII. Impediments to RMB Becoming a World Reserve Currency Due to Circulation Restrictions
Experts generally agree that achieving the status of a major global reserve currency requires full RMB convertibility, which entails an open capital account allowing for the free flow of capital in and out of China.65China's current capital controls and its management of the exchange rate present significant limitations on the widespread use and attractiveness of RMB-denominated assets for foreign investors and central banks.62 These restrictions also impede the development of deep, open, and well-regulated capital markets within China, which are essential for a currency to be widely held as a reserve.55 Furthermore, concerns regarding the rule of law and the level of transparency in China's financial system contribute to the reluctance of some international entities to hold large volumes of RMB.70 The most substantial impediment, therefore, to the RMB becoming a true global reserve currency is the absence of full capital account convertibility, despite its increasing use in settling international trade transactions.59 Reserve currencies need to be freely usable and easily tradable in deep and liquid financial markets, conditions that are not yet fully met by the RMB due to the existing capital controls.59
When comparing the RMB to other major reserve currencies like the US dollar and the Euro, a key difference lies in the openness of their capital accounts and the maturity of their financial markets.62Historically, currencies that have achieved international reserve status have often been those of countries with democratic systems and established checks on governmental actions.72 Currently, the RMB's share in global reserve portfolios remains considerably lower than that of the USD, EUR, GBP, and JPY.66 While the RMB is gaining traction as a trade settlement currency, its limited use in global financial markets, particularly in terms of investment and reserve holdings by central banks, indicates that it has not yet reached the level of a widely accepted store of value.74 This suggests that while the trend points towards greater internationalization of the RMB, the lack of free capital movement continues to restrict its appeal as a long-term reserve asset.
| Currency | Share of Global Allocated Reserves (Q3 2024, %) |
| US Dollar | 57.0 |
| Euro | 20.0 |
| Japanese Yen | 6.0 |
| British Pound | 5.0 |
| Chinese Renminbi | 3.0 |
IX. China's Strategic Initiatives to Enhance RMB Internationalization
China has been actively pursuing a multifaceted strategy to enhance the internationalization of the RMB. This includes the establishment of offshore RMB markets and clearing centers in key financial hubs such as Hong Kong, Singapore, and London.70 The PBOC has also entered into numerous bilateral currency swap agreements with foreign central banks 70, facilitating the exchange of local currencies and promoting RMB usage in trade and investment. A significant focus has been on encouraging the settlement of cross-border trade and investment in RMB, particularly within projects related to the Belt and Road Initiative (BRI).70 To reduce reliance on Western-dominated financial infrastructure, China has developed its own Cross-Border Interbank Payment System (CIPS).70 The PBOC has also gradually allowed for greater flexibility in the RMB exchange rate.65 A notable milestone was the inclusion of the RMB in the IMF's Special Drawing Rights (SDR) basket in 2016, which enhanced its international status.77 More recently, China has been promoting the use of its central bank digital currency, the e-CNY, in cross-border payments and within initiatives like Project mBridge.70 The PBOC has also announced further measures aimed at boosting the use of RMB in cross-border payments, pricing, investment, and financing.82 These initiatives reflect a deliberate and long-term approach by China to increase the global standing and usage of its currency, balancing the goals of internationalization with the need to maintain domestic financial stability through managed capital account liberalization.70
X. Future Projections for the RMB in the Global Financial System
Looking ahead, the international role of the RMB is expected to continue its upward trajectory, particularly as a currency for trade and settlement, especially within Asia and the Global South.65 However, it is unlikely that the RMB will supplant the US dollar as the dominant global reserve currency in the foreseeable future due to the existing capital controls and other structural limitations.69 The RMB has the potential to evolve into a more significant regional currency and to serve as a viable alternative for countries seeking to diversify away from the US dollar.65 The adoption and international use of the e-CNY could play a pivotal role in this evolution.8 Ultimately, geopolitical factors and the willingness of other nations to embrace the RMB for trade and financial transactions will be crucial determinants of its future success on the global stage.13 While the overall trend suggests an increasing international presence for the RMB, primarily driven by China's considerable trade and financial influence, its path to becoming a global reserve currency comparable to the US dollar faces substantial structural and political challenges, suggesting a future characterized by a more multipolar currency system rather than a swift replacement of the greenback.69
XI. Motivations Behind the Development of SWIFT Alternatives
The increasing development and adoption of alternatives to the SWIFT system are driven by a confluence of factors. Dissatisfaction with SWIFT's relatively high costs, slow processing times for international transfers, and a perceived lack of transparency in its operations are key economic motivations.12 Additionally, geopolitical considerations play a significant role, with many countries seeking to circumvent the potential for US-led financial sanctions and reduce their reliance on the dollar-dominated global financial system, where SWIFT serves as a critical infrastructure.8 There is a growing desire among nations for payment systems that offer greater financial sovereignty and are not perceived as being subject to undue political influence from Western countries.18 Technological advancements, particularly in the realm of blockchain and distributed ledger technology, are also fueling the development of SWIFT alternatives that promise faster, cheaper, and more secure cross-border payment solutions.14 Therefore, the push for SWIFT alternatives is driven by a combination of economic incentives, strategic geopolitical considerations, and the transformative potential of new technologies in the financial sector.41
XII. BRICS Initiatives for an Alternative Payment Framework
The BRICS nations have been actively pursuing the development of an alternative payment framework to reduce their reliance on the US dollar and the SWIFT system. A key initiative in this regard is the proposed BRICS Pay 46, envisioned as a decentralized payment messaging system that would allow BRICS countries to conduct trade and financial transactions in their own local currencies, potentially leveraging blockchain technology for enhanced security and efficiency.46 The primary aim of BRICS Pay is to bypass the SWIFT network and thereby mitigate the risk of exposure to US sanctions and the broader influence of the US dollar in international trade.46 The development of BRICS Pay is expected to build upon the existing national payment infrastructures of member countries, such as Russia's Mir, India's Unified Payment Interface (UPI), and China's Alipay and WeChat Pay.46 While discussions have also touched upon the possibility of creating a common BRICS currency or unit of account, no concrete plans have been announced yet.46 Despite the challenges inherent in coordinating such a diverse group of nations, BRICS has made progress in developing the necessary financial infrastructure and promoting the use of local currencies in trade among its members.92 BRICS Pay represents a strategic endeavor by these nations to strengthen their financial autonomy and establish a payment system that is less susceptible to external political and economic pressures, particularly from the West.91
XIII. Implications of the ASEAN+3 Finance Ministers and Central Bank Governors Meeting (Milan, May 5)
The ASEAN+3 Finance Ministers and Central Bank Governors Meeting held in Milan on May 5th marked a significant step towards enhanced regional financial cooperation. A key outcome of the meeting was the endorsement of the establishment of a Rapid Financing Facility (RFF) under the Chiang Mai Initiative Multilateralization (CMIM).95 This new facility will incorporate eligible freely usable currencies (FUCs), including the RMB, as currencies of choice for providing liquidity support to member economies during times of emergency. The meeting also involved discussions on the potential impact of US tariffs on the global and regional economic outlook.95 A central theme was the need to strengthen regional financial cooperation and economic resilience in the face of increasing global uncertainties.99 Finance leaders emphasized the importance of enhanced regional unity and cooperation to navigate heightened uncertainty and rising protectionism in the global economy.96 To bolster regional economic stability, the meeting underscored the need to promote greater intra-regional trade and investment flows among the ASEAN+3 nations.96 The inclusion of the RMB as one of the eligible freely usable currencies in the CMIM's RFF is particularly noteworthy. This decision not only expands the available financial resources under the CMIM but also signifies meaningful progress in the broader effort to diversify the international monetary system within the ASEAN+3 region.95 It suggests a growing regional consensus on the importance of reducing dependence on the US dollar and exploring the use of alternative currencies, such as the RMB, for financial cooperation and stability within the region.95
XIV. Conclusion: The Future Trajectory of RMB in Global Trade and Finance
The analysis presented in this report indicates that China's digital yuan is poised to play an increasingly significant role in international trade, offering advantages in terms of speed and cost that could incentivize wider adoption, particularly among emerging markets and strategic partners. The development of key payment infrastructures like mBridge and CIPS provides the necessary rails for facilitating cross-border RMB transactions. While CIPS still relies on SWIFT for a substantial portion of its messaging, it represents a crucial step in China's efforts to internationalize its currency and reduce dependence on the US dollar-dominated financial system. The emergence of various SWIFT alternatives, including those proposed by BRICS, further underscores a global trend towards seeking more efficient, transparent, and politically neutral payment solutions.
Despite these advancements, the RMB's ascent to the status of a world reserve currency faces considerable challenges, primarily stemming from China's capital control mechanisms. These restrictions, while aimed at maintaining domestic financial stability, limit the free circulation of the RMB in international markets and hinder the development of the deep and liquid financial markets typically associated with reserve currencies. Expert consensus suggests that full capital account convertibility is a prerequisite for the RMB to truly rival the US dollar in global finance.
China's strategic initiatives to promote RMB internationalization, including establishing offshore markets, engaging in currency swaps, and developing CIPS, demonstrate a long-term commitment to enhancing its currency's global role. The future of the RMB will likely involve a gradual increase in its international usage, driven by China's economic influence, but its ability to achieve dominant reserve currency status remains uncertain. Geopolitical factors and the decisions of other countries regarding currency adoption will also play critical roles. The recent ASEAN+3 meeting, with its emphasis on regional financial cooperation and the inclusion of RMB in its emergency financing facility, signals a growing acceptance of the Chinese currency within the region.
In conclusion, while the e-CNY and related infrastructures mark a significant evolution in international payments and pose a challenge to the existing financial order, the US dollar's entrenched dominance, coupled with China's cautious approach to capital liberalization, suggests a future where the RMB's influence grows steadily but is unlikely to lead to a swift displacement of the dollar. Instead, the global financial system is likely moving towards a more multipolar landscape with several key currencies playing significant roles in trade and finance.
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