Yuan’s Global Reserve Currency Push Gains Strength as e-CNY Pilot Continues Across China

The adoption drive for digital yuan (e-CNY) within China is continuing even as the People’s Bank of China (PBoC) steps up its effort to develop a yuan reserve with the Bank for International Settlements (BIS) and five other countries.

China says it is teaming up with Indonesia, Malaysia, Hong Kong, Singapore, and Chile – each contributing CNY 15 billion (about $2.2 billion) to the Renminbi Liquidity Arrangement – to build the reserve which will be in the custody of BIS. China is also developing the yuan as a new reserve currency with other BRICS countries – Brazil, Russia, India, and South Africa – as disclosed a week earlier by President Vladimir Putin.

CNY aims for global currency status 

In line with these moves, there’s been a report that India’s biggest cement producer, UltraTech Cement is importing a cargo of Russian coal and paying using the yuan. It marks the start of using the yuan to settle payments for imports from countries other than China.

It adds to the overall aim to build the yuan to compete with the US dollar and prop up other economies, an agenda that has often been linked with the introduction of the e-CNY which has been in a trial phase across major Chinese cities as well as used for cross-border experiments for more than a year.

In March, the International Monetary Funds (IMF) noted in a working paper that the US dollar share of international reserves declined from 71% to 59% since 2000, and a quarter of the shift out of dollars flowed into the yuan. The IMF added that the yuan’s internationalization effort in recent years had been attributed to a slew of steps capped with the introduction of the e-CNY.

Now, with Russia under sanctions from the US, EU and UK following its invasion of Ukraine, the new basket currency is giving rise to the rupee-yuan-rouble route with the aim to rival the US-dominated IMF alternative and provide an option that would not involve the US dollar. The currency will seek to address the US dollar hegemony and allow member countries of BRICS to build their sphere of influence as well as a corresponding unit of currency. If found favourable, it is also suggested that businesses could be incentivized to switch over to the route.

e-CNY spreads in Guangzhou 

Meanwhile, after it has been trialed in cities like Beijing, the e-CNY uptake continues to record progress. In Guangzhou where the central bank digital currency pilot was launched in April with seven financial institutions participating, 2.025 million personal wallets have been opened as of June 15 as well as 195,000 corporate accounts created, according to Guo Yunxi, the deputy head of the Guangzhou Branch of the PBoC. He adds that 3.363 million transactions have so far been conducted (including transfers) worth CNY490 million in the 2-month period.

At the 11th China International Financial Trading Expo held in Guangzhou and concluded on Sunday, Chinese carmaker, Geely Automobile Holdings, issued coupons worth 1,000 to 8,000 yuan ($150 to 1,200) in e-CNY to be used when buying cars at its 4S stores. Also at the event, 11 e-CNY application demonstration scenarios were reported to have been awarded licenses as 61 project agreements were signed covering contracts worth CNY215.6 billion.