person holding a gold bitcoin and chinese yuan

China moves forward with CBDC cross-border payment experiments

Chinese authorities have unveiled a plan for its central bank digital currency (CBDC) to be used in cross-border transactions under its Belt and Road Initiative in Xuzhou.

Xuzhou’s location as a departure hub for the bulk of Chinese goods to Europe makes it integral for the central bank’s plan to increase adoption rates. The city has 18 cross-border rail connections to over 21 cities in Asia and Europe, making it the perfect region to expand the digital yuan to new frontiers.

Authorities plan to allow digital yuan to be utilized in the payment for storage charges for items to be ferried by the city’s international rail connections. The report disclosed that there are plans to expand the CBDC use in the payment of utilities and taxes by the city’s residents.

Cross-border payment functionality is one of the features the People’s Bank of China (PBoC) is keen on exploring to trigger an adoption spree. The PBoC previously took part in the mBridge CBDC pilot with the central banks of Thailand, Hong Kong, and the United Arab Emirates to explore cross-border payment functionality for CBDCs.

The PBoc and the Hong Kong Monetary Authority (HKMA) appear to be collaborating on using the digital yuan for international payments, using the Guangdong-Hong Kong-Macao Greater Bay Area as an incubation hub.

“The HKMA is working with the mainland’s central bank, the People’s Bank of China, to test the digital yuan as a cross-border payment tool in Hong Kong,” said Darryl Chan, HKMA deputy chief executive.

As Russia turns to CBDCs to circumvent economic sanctions, several reports have singled out China as the first country interested in exploring international settlements with the digital ruble. Over the last few months, China has penned several trade treaties with Russia and India over plans to float a new trade currency outside the U.S. dollar.

Waning interest in the digital yuan

After the initial interest from the digital yuan wore off, the PBoC noted a decline in transaction volumes and wallet downloads for the CBDC. In response, the central bank unveiled new features, including the red envelope, offline payment, and smart contract functionalities in the CBDC.

China’s Communist Party unveiled ambitious goals for the digital yuan in 2023, with cities urged to introduce policies to drive up adoption rates. In the weeks leading up to the Chinese New Year celebrations, the government gave out over $26 million in subsidies using the digital yuan, while the city of Changshu revealed that it would begin paying government employees using the CBDC.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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