China’s Central Bank Digital Currency (CBDC): Considerations for Australia

Today’s Digital Currency Landscape

At this stage, the global roll-out of CBDCs remains limited. Only one country so far has a nationwide CBDC, operating alongside its existing fiat monetary system, namely the Bahamas. However, an increasing number of countries are exploring models to introduce some form of their own CBDC, and many have already established closed-loop CBDC pilot tests.

It is noteworthy that the world's two largest economies, China and the USA, have adopted nearly opposite approaches to digital currencies. Under President Trump, the USA has ruled out a CBDC and instead adopted a relatively private-sector-friendly approach toward adoption of cryptocurrencies – particularly stablecoins. For example, alongside multiple unofficial cryptocurrencies such as the “Trump Coin” (also known as $Trump), the first official USD-linked stablecoin issuance was launched in July 2025 as the ‘Mariana USD’ (MUSD) in the Northern Mariana Islands (NMI) – a U.S. territory in the North Pacific – and specifically on the NMI island of Tinian. The project is managed by Marianas Rai Corporation, a local technology firm.

On the other hand, mainland China has outlawed cryptocurrencies and adopted a centralised sovereign CBDC approach, with an incremental process of testing and pilot rollout underway. The Chinese territory of Hong Kong, however, is not impacted by mainland China’s cryptocurrency ban, and has its own cryptocurrency-friendly digital finance agenda underway.

Global Interoperability Challenges

Cross-border payments today are largely dominated by SWIFT, the Society for Worldwide Interbank Financial Telecommunication. SWIFT is a Belgian-based entity that uses a system of banking codes to underpin payment messaging between financial institutions. For half a century, SWIFT has provided a secure centralised payment transfer system within and across countries. Since replacing the US-based Telex system in the 1970s, the vast majority of the world’s banks have relied on SWIFT’s network to securely transmit payment-related information and instructions.

In 2012, a European Union legal directive required SWIFT to disconnect sanctioned Iranian banks. SWIFT has since been required to enforce similar measures, such as widespread financial sanctions against Russia. This use of SWIFT for sanctions has prompted some countries to reconsider their reliance on the system.

Once established, digital currency payment networks offer a relatively accessible, cost-effective and highly efficient means of reducing reliance on SWIFT. Indeed, just as SWIFT replaced the earlier US-centric Telex system, digital currencies may equivalently supersede SWIFT. That potential, however, draws attention to the complexity of developing a unified international digital payments architecture comparable to that of SWIFT.

Conversely, a lack of interoperability or the hasty adoption of digital monetary systems could bring the worst of all worlds: reconciliation delays, increased costs, a high technology burden, and heightened risks of surveillance and cyberattacks across borders. International monetary agencies like the Basel-based Bank of International Settlements (BIS), and many smaller groupings of Central Banks are in the midst of intensive discussions and tests, as to how to coordinate digital monetary change across countries and monetary zones.

There is, moreover, no consistent case for a digital currency across the world: each country has its own digital payment drivers and design preferences. Some countries and regions, such as China and the Euro area, prefer a state-backed digital equivalent of cash with ironclad legal tender status. In contrast, countries such as the United States are exploring more flexible, market-driven approaches, often centred around the use of stablecoins. Strictly speaking, interoperability across digital monetary systems does not require identical domestic frameworks, but rather seamless points of interface connections. CBDCs, cryptocurrencies and stablecoins are all distinct, and can coexist, but it is important for consumers as well as regulators to understand the differences and to find means of ensuring their smooth interaction.

China’s CBDC: The e-CNY

The e-CNY, also known as the digital yuan or digital RMB, is China’s CBDC and is considered as legal tender in digital form issued by the People’s Bank of China (PBoC) for retail payments. The ‘digitisation of the RMB’ refers to the transformation from physical cash – notes and coins – to a digital currency format. The e-CNY is legally treated as an extension of RMB; hence, no new legislation was required to make e-CNY legal tender.

Although China’s ‘offline’ CBDC testing began around a decade ago, a systematic pilot launch phase began, incrementally, in selected localities from 2023. The initial pilots were conducted in some of China’s most modern and wealthy cities, including Beijing, Chengdu, Shenzhen and Suzhou. Within these cities, however, testing was not universal; instead, CBDC payments were gradually introduced to specific retail payment types, such as for public transport and public services. While still far from a national rollout – let alone an international one – the e-CNY’s pilot testing is among the most advanced material rollout of any major economy CBDC worldwide. At mid-2024 digital retail payments had reached seven trillion e-CNY.

Design and Characteristics

Sovereign currency traditionally serves three core functions:

1. Payments (liquid transactional settlement);

2. Pricing (valuation); and

3. Investments (as an institutional asset for investing)

The e-CNY, at least initially, is a retail CBDC targeting only the first of those functions – payments. That is, it aims to substitute for cash in circulation and hence to facilitate payments, rather than providing a unit for financial investment products (functions 2 and 3). In future, however, the e-CNY may take on added monetary functions. Meanwhile, that contemporary focus means that there are three central mechanisms that characterise the design of the e-CNY (Table 5).

How e-CNY Differs from Traditional RMB

The intended functions of e-CNY, and resulting design structure (Table 5), in turn distinguish it from the traditional fiat RMB (Table 6). For example, e-CNY wallets do not require an intermediary bank account and embody a set of chosen features unique to digital currency. It also differs in its approach to anonymity and its ability to support pre-programmed units of currency with embedded conditions.

Industry and Structural Considerations of Implementing the e-CNY

China’s World-frontier Mobile Payments Ecosystem

Since the e-CNY, at least initially, intends to substitute for M0 (cash in circulation), it applies most to daily retail consumption-related payments. This means its role almost perfectly overlaps with China’s pre-existing mobile payment system that has been advanced by global-level innovative companies like WeChat Pay and Alipay.

Presently the design of the e-CNY architecture is designed to complement the existing mobile payment service providers’ ecosystem. By this design, digital wallets on a user’s phone now offer two options instead of one – traditional RMB or e-CNY. Akin to there being two bank accounts attached to one electronic payment card. Moreover, major players such as Alipay and WeChat Pay have been designated as official e-CNY operators.

Meanwhile, e-CNY wallet usage will also support pre-programmed payments, universal transactability and no ceilings on payment amounts. This makes it more convenient for corporate usage than the existing mobile payments set up. Box 1 summaries the differences in user choice between the two account types.

The e-CNY and the Commercial Banking Sector

There are concerns that the e-CNY (and digital payments in general) could weaken traditional banking systems by allowing payments to bypass banks entirely. To reduce this risk, China has designed the e-CNY so that it’s not distributed directly by the central bank. Instead, commercial banks and payment providers issue digital wallets, keeping them involved in the financial system.

In fact, commercial banks in China have already lost large market shares for having missed the mobile payment revolution. The emergence of the e-CNY will be either a chance for them to reconnect directly with clients, or to fall further behind.

The e-CNY and RMB Internationalisation

Today, China’s currency operates within a largely closed capital account system, underpinned by tight regulatory controls that strictly limit the free movement of money in and out of China. By providing new tools of monetary governance, including real-time traceability and transaction controls, a digital RMB system is likely to increase the extent to which Chinese money circulates internationally. It would also provide a mechanism for transactions to bypass SWIFT, thereby circumventing any risk that SWIFT might ever be called to impose.

The BRICS countries – namely Brazil, Russia, India, China and South Africa (plus a further five newer member countries) – moreover, have an explicit agenda to diminish dependence on SWIFT. Some BRICS members may also be at the forefront of much bigger potential shift in global commodities trade toward digital payments. In a December 2022 speech at the China-Gulf Cooperation Council Summit, General Secretary Xi Jinping proposed that full use should be made of the Shanghai Petroleum and Natural Gas Exchange (“the Exchange”) platform to carry out RMB settlement of oil and gas transactions. The same year, China Petroleum International Company used a digital wallet opened at the Exchange at the Bank of Communications to settle a shipload of nearly 1 million barrels of crude oil – for the first time using e-CNY. China did not announce its trade partner, and only noted that the transaction was completed together with a leading oil and gas exporter. The only country that is a member of BRICS, the Gulf Cooperation Council, and a major oil and gas exporter, and also part of China’s international digital payments tests, is the UAE – a nation that Prime Minister Albanese will visit this month to advance free-trade discussions with.

Indeed, beginning in 2021, China and the UAE, alongside Hong Kong and Thailand, have carried out cross-border sovereign CBDC digital payment tests under the umbrella of the mBridge project. Having reached the Minimum Viable Product (MVP) stage in November 2024,  the mBridge project found that cross-border transactions between sovereign CBDCs to be more efficient than the status quo in areas including:

1. A substantial reduction in cross-border transfer times from 3-5 days to several seconds;

2. Direct peer-to-peer linkages between participating banks, potentially lowering the cost of cross-border transactions;

3. Reduced settlement risk; and

4. Relative support for the use of local currencies in international payments, bypassing the need for US dollar conversions.

A digital payments system that enables greater use of local currencies in cross-border transactions could also enable China and other nations to chip away at the US dollar’s dominance as the leading global reserve currency, since a larger share of international payments would no longer need to go through US dollar conversions. Over time, this could potentially transform the monetary status quo.

It is important to note that digitisation itself would not solve all the challenges associated with the internationalisation of RMB, which also depends on factors such as exchange rate flexibility, market openness, and trust too. Nevertheless, the e-CNY represents a significant new avenue through which China can seek to advance the hitherto otherwise limited internationalisation of its currency.

There may also be workarounds in a context of overcoming some of the policy-related challenges, such as the cautious stance of China’s monetary authorities on fully opening the capital account. For example, China may opt to gradually develop a dual-currency circulation model, with the RMB and e-CNY circulating domestically, and a digitally separate stablecoin-linked version of the e-CNY circulating abroad, with Hong Kong’s financial sector acting as a financially innovative conduit. This type of approach could also provide China with means of more directly responding to the USA’s adoption of a proactive stablecoin-based digital payments agenda, and would also give China’s corporate giants more competitive payments flexibility.

Digital Currencies and Australia

Australia, unlike China, does not currently have an active CBDC pilot underway. Like China, however, it has adopted a relatively conservative position on cryptocurrencies.

The Reserve Bank of Australia (RBA), the central bank of Australia, has been exploring the possible implementation of a CBDC. A key difference in Australia’s decision-making so far is that, while China has adopted a retail payments-focused CBDC, the RBA has chosen to explore the potential of a wholesale CBDC instead.

As per the RBA’s website: “A wholesale central bank digital currency (CBDC) would be a digital form of money, issued by the RBA, that is accessible to a limited range of wholesale market participants, such as financial institutions and, depending on the design of this form of money, other large institutions. It would be designed for use in wholesale payment and settlement systems.”

This approach accommodates the RBA’s finding that a clear public interest case for a retail CBDC in Australia is yet to emerge. All the while, the RBA has recognised that a wholesale CBDC could provide tangible economic benefits for the corporate sector for example in terms of quicker settlement times, lower payment costs, and programmability features too. Such would also ensure that Australia’s financial system stays connected to any evolving international digital payments architecture.

The RBA, however, has not yet made a decision to introduce a wholesale CBDC, but continues to undertake related research and tests. One such initiative is “Project Acacia”, which is exploring the role of digital currency in wholesale tokenised asset markets. The RBA has not, however, indefinitely ruled out a retail CBDC, and some reports suggest that it will revisit the idea in 2027.

Concluding Considerations for Australia of China’s e-CNY Agenda

Unlike China, the RBA has for now opted against the introduction of a retail CBDC, and is focused on the potential of a wholesale CBDC instead. Nonetheless, developments in China’s retail e-CNY and other nations’ digital currency choices will unavoidably impact Australia’s monetary and trade policy landscape.

Furthermore, any broader transition to digital currency-based commodities trade could not only unlock greenfield emerging markets – through greater payment certainty, faster transaction speed, and potentially reduced USD currency conversions and associated costs – but also affect competitive dynamics in existing markets. That is, a new era of digital currency-based payment settlement could ultimately also influence Australia’s key commodity exports, such as iron ore, coal and gas. China’s position as the largest buyer of Australian commodities, its global purchasing power in the sector, and its leadership in digital finance mean that developments with the e-CNY may shape long-term commodity price dynamics, as well as negotiation patterns and scope.

                                                   

These are examples of the prospective developments that Australian monetary authorities will need to monitor with vigilance, as well as how any such evolution shifts the international monetary landscape overall. At this stage, the roll out of China’s e-CNY internationally is limited to selective bilateral test transactions with just a handful of countries. Yet, bigger structural change, including institutional linkages between the e-CNY and Hong Kong’s global financial markets, could nonetheless evolve unexpectedly and more disruptively for Australia if developments are left unobserved or unprepared for.

In the general case of a broader rollout of digital currencies, a potential risk to consider is that any accumulation of digital currency issued by another sovereign state could be instantly and directly frozen by that issuer (or controller of the relevant digital ledger). A new system of rules and disincentives around the politicisation of this feature is likely to require new monetary governance systems and agreements.

The same logic applies to how the e-CNY (or any respective CBDC) could extend the capacity for surveillance, posing privacy risks both across and within borders. This could also apply at the firm level, where increased visibility into a company’s commercial operations might undermine its autonomy and competitiveness, particularly in cases where surveillance practices are uneven across jurisdictions.

Similarly, where one country has the capacity to prevent cyberattacks that preserve the sovereignty of its digital finance architecture while others do not, this too could create an added layer of uneven risks to competitiveness and trust. In response, there may be a need for agreement around a dedicated international agency or new department within an existing agency that is focused on digital monetary security and crisis response.

Furthermore, in a new era of near instant programmed payments and subsidies, whole new forms of trade barrier may emerge. For example, government subsidy payments that top-up incomes could be tied to specific geographies and potentially even to particular local products and brands. Pensioner transfers may, for example, be marginally increased if purchases are restricted to spending on Chinese-made or Chinese-owned consumer items and services. This could potentially provide a new and more opaque lever for the Chinese government to restrict sales of Australian goods and services in China, versus the more transparent use of trade barriers as were used in recent years. At this stage, Australia’s free-trade agreement with China does not account for such potential.

In concluding, the emergence of the digital currency era is disruptive in principle, but not yet in practice. A global shift to a monetary system based on digital currencies involves immense technological and regulatory complexity, and is also marked by geoeconomic competition over currency influence. Any bigger structural shift away from Belgian-based SWIFT’s role in international payments would also bring uncertainty around the capacity to regulate the movement of money across borders. 

For Australia, it will be important to closely monitor global monetary developments, especially those of the e-CNY, the most advanced CBDC pilot among major economies and the digital currency of Australia’s largest trading partner. Equivalently, it must also monitor developments in more liberal digital payments regulatory environments, such as those of Hong Kong and the USA. Only this way can Australia be sure to shape its own digital currency future in full cognisance of its national interests within that complex and technology-intensive new global monetary landscape.