- China is providing approximately 260 million people with access to a new payment system that does not require banks.
- The US dollar remains the world’s primary reserve currency, accounting for about 58 per cent of global foreign exchange reserves as of the end of 2024.
- Ultimately, the core challenge of digital currencies lies in their programmability.
- The expansion of CBDC initiatives suggests that the future monetary system will likely be multipolar rather than dominated by a single currency regime.
China is providing approximately 260 million people with access to a new payment system that does not require banks. Its digital yuan is not merely a payment tool but an instrument designed to reshape monetary systems. For decades, the United States has dominated global finance; China’s digital currency now presents a potential threat to that dominance.
Digital currencies differ from traditional money because they exist entirely in digital form and operate through electronic devices. Secured through cryptographic protocols, they enable verified transactions between authorised parties and are transforming how economic exchange occurs.
Central bank digital currencies (CBDCs) differ from decentralised cryptocurrencies such as Bitcoin because they are state-issued legal tender backed by central banks. In essence, they function as digital cash.
China launched the e-CNY pilot in 2020, and by early 2025, cumulative transactions reportedly exceeded 7 trillion yuan (about $950 billion). The system can operate without bank accounts or internet access, using near-field communication technology that allows users to transfer funds by tapping devices.
The significance of digital currencies lies not only in technological efficiency but in the new capacities they grant governments, making them powerful instruments of economic policy and financial control.
Challenge to Dollar Dominance: Bypassing the SWIFT System
The US dollar remains the world’s primary reserve currency, accounting for about 58 per cent of global foreign exchange reserves as of the end of 2024. Its widespread use gives the United States substantial financial leverage, including the ability to freeze assets, block transactions, and exclude states from the global financial system. This centrality constitutes a key source of US structural power in international finance.
Much of this influence operates through SWIFT, the Belgium-based financial messaging network that facilitates communication among more than 11,000 banks across over 200 countries and processes upwards of 44 million messages daily. While not all cross-border payments pass through SWIFT, it remains the dominant infrastructure for international financial transfers and a crucial instrument for sanctions enforcement, over which the United States exercises significant influence.
China’s digital currency strategy is presented as an alternative mechanism. Transactions conducted between countries using central bank digital currencies can, in principle, be settled directly without relying on SWIFT or the US dollar. China has tested this model with Thailand, the United Arab Emirates, and Hong Kong through the multilateral mBridge platform, where pilot transactions reportedly reached about $22 billion.
The implications extend beyond sanctions evasion. Payments for commodities such as oil conducted in digital yuan could weaken the petrodollar system that has underpinned US monetary influence since the 1970s by reducing global demand for dollars. Some analysts argue that such developments could, over time, complicate the Federal Reserve’s management of inflation and borrowing costs.
Beijing has nonetheless expanded cautiously. International visitors were able to use digital yuan during the 2022 Winter Olympics, and by 2024, China had reportedly linked the currency to payment systems in 23 countries. Limited acceptance has also emerged in parts of Southeast Asia and among select merchants in Hong Kong, Macau, and Singapore, reflecting a gradual strategy aimed at promoting the yuan’s internationalisation.
The Privacy Trade-Off: Total Surveillance or Financial Freedom?
The digital yuan is a payment system that records transactions and stores data accessible to authorities, including the People’s Bank of China. While users are generally anonymous to merchants and other individuals, state authorities can monitor activity, restrict wallet functionality, and impose conditions such as expiration dates or location-based usage. This makes the digital yuan comparable to conventional money but with significantly greater programmable state control.
Pilot programs illustrate these capabilities. In Shenzhen, authorities distributed digital yuan designed to expire within a specified period to stimulate spending during economic slowdowns, and tests reportedly limited its use to designated merchants. Such features demonstrate how digital currency architecture can influence spending behaviour through embedded rules. In 2023, officials also showed that wallets suspected of illegal use could be frozen without prior judicial authorisation, highlighting the system’s regulatory and enforcement potential.
Western democracies face a structural dilemma: competing with China’s central bank digital currency requires comparable technological capabilities, yet extensive transaction monitoring raises concerns about legal and civil liberties. In the United States, for example, constitutional protections against unreasonable searches shape debates about how far financial surveillance should extend, especially given the longstanding anonymity associated with cash.
The European Central Bank’s digital euro project reflects this tension between innovation and rights protection. Policymakers are exploring designs that would allow limited offline payments while incorporating safeguards against illicit use. Proposals include small offline transaction thresholds, such as payments of about 300 euros or less, alongside identity verification requirements for certain transactions. Critics argue that such frameworks could create uneven privacy protections, potentially favouring users able to remain within low-value thresholds.
Ultimately, the core challenge of digital currencies lies in their programmability. The same technological features that enable efficiency and policy flexibility also permit monitoring and control, making it difficult to design systems that simultaneously maximise convenience, security, and privacy.
India’s Digital Rupee: Racing to Catch Up
India started a trial of its digital currency, the digital rupee, in December 2022, partly in response to global developments, including China’s progress with digital currency initiatives. By 2025, it had approximately 5 million users and around 400,000 merchants accepting it, though it remains far from matching China’s scale.
The Reserve Bank of India is examining the digital rupee for both retail use and interbank settlement. For consumers, it is intended to expand financial inclusion, particularly among the roughly 190 million unbanked adults. Its phone-based functionality enables payments in areas far from physical banking infrastructure, supporting the central bank’s financial access objectives.
However, India faces structural constraints because digital payments are already dominated by the Unified Payments Interface (UPI), a highly successful real-time system processing more than 12 billion monthly transactions in 2025. Because UPI is fast, free, and widely integrated across applications, the digital rupee must demonstrate clear functional advantages to achieve widespread adoption.
Geopolitically, India occupies a complex position, participating in both the Quad and BRICS while balancing strategic caution toward China with selective technological cooperation, including on central bank digital currency initiatives. In January 2025, India and the United Arab Emirates reportedly conducted a cross-border digital currency transaction outside dollar and SWIFT-based systems, and India is testing similar arrangements with Singapore and Indonesia. These initiatives suggest a strategy to build an interoperable currency infrastructure capable of operating across competing financial blocs.
If successful, India’s digital rupee could become a regional settlement foundation for India and its neighbours, potentially reducing reliance on the US dollar. It has already attracted interest from countries such as Bangladesh, Sri Lanka, and Nepal, which see potential for lower remittance costs and increased regional trade.
The Emerging Landscape: A Multipolar Monetary Future
By the start of 2025, more than 130 countries representing approximately 98 per cent of global GDP were exploring central bank digital currencies (CBDCs), with eleven already having launched them, including the Bahamas’ Sand Dollar, Jamaica’s JAM-DEX, and Nigeria’s eNaira. The European Central Bank is considering a digital euro around 2028, while the Federal Reserve remains cautious, continuing research without announcing a launch timeline for a digital dollar.
The expansion of CBDC initiatives suggests that the future monetary system will likely be multipolar rather than dominated by a single currency regime. Instead, multiple digital currencies and platforms may coexist with limited interoperability, potentially forming regional or geopolitical blocs. China could lead a network spanning parts of Asia and Africa, Europe may prioritise privacy protections, and any future U.S. digital currency would likely emphasise regulatory compliance, financial security, and anti-money-laundering enforcement.
The implications for individuals and states remain uncertain. CBDCs could expand financial inclusion but may also marginalise populations lacking digital access or literacy. They could enhance privacy or enable greater surveillance, and they may either streamline cross-border payments or fragment global finance if systems remain incompatible.
Ultimately, these developments concern not only technology but also power, privacy, and monetary sovereignty in an interconnected world. The outcome of this emerging contest may shape the rules of global finance for the next generation.
Raghvendra Tripathi is an independent researcher with a background in computer applications and a keen interest in technology and geopolitics. His articles focus on how emerging technologies influence international strategy, policy, and global power dynamics. Views expressed are the author’s own.
Dr. Muktha L S 
Hridbina Chatterjee 
Aayush Pal