The highest US tariffs in almost a century have had a muted impact so far on global growth, but Asian policymakers aren't lulled by the calm. They're taking their cues from jumpy markets and plotting what appears to be a mutiny against King Dollar. In the 1960s, the French could only rail against America's exorbitant privilege. In the 2020s, China -- aided by other countries -- may be in a position to challenge it.
Those searching for evidence of that uprising in payment flows are looking in the wrong place. For years to come, de-dollarization will remain hidden in additions and alterations to financial plumbing. The cumulative effects will take time to show.
With little fanfare, China's e-CNY, the official digital currency, has gone from being interest-free cash to a yield-bearing product of commercial banks. It's a profound change. Until now the problem with e-CNY adoption was that even the Chinese state workers who received their salaries as tokens in their e-wallets would immediately swipe them into their bank accounts. Now they don’t need to. For them, and their banks, e-CNY is no longer any different from a regular deposit account. Popular payment apps like Alipay and WeChat Pay work with both.
This maneuver won't make a dent into the greenback's current dominance: The dollar is the preferred global payments currency with a 50%-plus share, more than twice that of the euro, and way ahead of the yuan's 3%. But an e-CNY that's more widely used within China lowers the threat of further dollarization in a scenario where local savers switch to dollar stablecoins, 1:1 clones of the US currency traded on the blockchain. Paying interest on e-CNY is a defensive step because last year's US Genius Act expressly prohibits stablecoin issuers from offering yields.
But a moat against stablecoins won't be enough. To take on the dollar's hegemony more directly, China will have to attack it overseas. But outside of Hong Kong, where banks are making yuan-denominated trade financing available to clients in Indonesia and Cambodia, there isn't a deep enough pool of offshore liquidity in the Chinese currency.
Enter mBridge. When I wrote about it 2022, it was just a pilot project of the Bank for International Settlements and the monetary authorities of China, Hong Kong, Thailand and the United Arab Emirates. Some of their financial institutions had come together on a shared blockchain where they swapped prototype digital currencies issued by their central banks to settle cross-border claims of their corporate clients.
In 2024, Saudi Arabia joined the experimental payments platform. Yet it hardly attracted any attention before Russian President Vladimir Putin identified the underlying technology as a tool to circumvent sanctions and potentially undermine the dollar. The BIS withdrew from the project in late 2024, but the partner countries ran with it. According to a recently published Atlantic Council report, activity has swelled to more than 4,000 cross-border transactions since inception with a cumulative value of approximately $55.49 billion, a 2,500-fold increase from 2022. The e-CNY accounts for more than 95% of the settlement value.
There are reports that mBridge could morph into something larger. India, which has developed its own central bank digital currency, is looking to propose linking the CBDCs of so-called BRICS+ grouping of emerging markets, according to Reuters. The idea will be anathema to Washington. And since New Delhi has agreed to stop buying Russian oil to get out of the Trump administration's tariff prison, it's hard to say if its enthusiasm for a payments corridor that would also include Russia and Iran will endure.
Even if a viable anti-dollar coalition takes time to emerge, Beijing will keep pressing. A few years ago, President Xi Jinping's emphasis on China's need to build a "powerful currency" that's "widely used in international trade, investment and foreign exchange markets, and attain reserve currency status" would have been dismissed by investors as empty boast.
That's no longer the case. Markets are already questioning the dollar's exceptionalism. Looking under the hood of what caused the unusual spike in US bond yields after President Donald Trump launched his tariff war, New York University professors Viral Acharya and Toomas Laarits conclude that "investors lost confidence specifically in the long-term safety properties of Treasuries while still valuing their near-term benefits." They found evidence of a flight toward gold.
But gold can't be a payments currency. In the $9.6 trillion-a-day foreign exchange market, the greenback shows up in 89% of all trades. About two-fifths of this outsize share has been chalked up to its vehicle-currency status: Funds are first converted into dollars, and then reconverted into whatever the payee's bank account will accept. A tokenized, interest-paying e-CNY, settling transactions within China and around the world, will bypass the dollar -- and SWIFT messaging -- entirely. Now that superior plumbing have been invented, it won't be allowed to gather rust.