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China Pushes Digital Yuan to Promote Multi-Polar Global Currency System

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China’s central bank governor, Pan Gongsheng, announced plans to expand international use of the digital yuan (e-CNY) and called for developing a multi-polar global currency system during the Lujiazui Forum in Shanghai. This system would feature several dominant currencies competing with checks and balances, reducing reliance on the U.S. dollar and enhancing global financial stability.

To support this, China will establish an international operation centre for the digital yuan in Shanghai, aiming to boost the yuan’s role in global trade amid growing investor demand for alternatives to dollar-based assets. Pan highlighted vulnerabilities in traditional cross-border payment systems, which are prone to politicization and unilateral sanctions, positioning the digital yuan as a more resilient and efficient solution.

In a significant step, six foreign banks—including Standard Bank and First Abu Dhabi Bank—have agreed to adopt China’s Cross-Border Interbank Payment System (CIPS) for yuan-based international settlements, broadening the yuan’s footprint in global commerce.

China’s foreign exchange regulator emphasized maintaining a stable yuan exchange rate to shield against external shocks. Officials also pledged to further open China’s financial markets to foreign investors, promoting transparency and attracting international participation. With China’s fast-growing consumer market, foreign financial institutions are seen as key contributors to building a modernized financial system.

The move comes amid increasing global shifts away from the dollar, driven by U.S. tariff tensions and rising interest in cryptocurrencies and stablecoins as alternative stores of value.

China Unveils Broad Stimulus Measures to Revive Economy

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China’s central bank announced wide-ranging monetary stimulus and property market measures on Tuesday, aiming to revive an economy facing deflationary pressures and at risk of missing its growth target for the year. The People’s Bank of China (PBOC) revealed plans to lower borrowing costs, increase liquidity, and ease the burden of mortgage repayments for households, marking the latest attempt to restore confidence in the world’s second-largest economy after months of disappointing economic data.

Stocks and bonds in China rallied as Governor Pan Gongsheng outlined the measures, which include cutting banks’ reserve requirement ratios (RRR) by 50 basis points (bps). This move will free up around 1 trillion yuan ($141.93 billion) for new lending, though credit demand remains weak. The PBOC will also lower the seven-day repo rate by 0.2 percentage points to 1.5%, and reduce the medium-term lending facility rate by 30 basis points. Loan prime rates will also see a 20-25 bps cut.

The property market, a major driver of China’s economy, received further support with a 50 bps reduction in average interest rates for existing mortgages and a reduction in the minimum down payment to 15% for all types of homes. China’s property market has been in decline since its peak in 2021, and the crisis has heavily impacted consumer confidence, with 70% of household savings tied to real estate.

Despite earlier efforts to lower mortgage rates and downpayment requirements, demand for homes remains weak, and prices continue to fall. August’s economic data missed expectations, adding urgency to the stimulus package. Analysts warn, however, that these measures may not be sufficient to fully restore growth unless complemented by stronger fiscal policies.

Local governments have accelerated bond issuance to fund infrastructure projects, and analysts expect further support measures in the coming weeks as China aims to meet its roughly 5% growth target for the year. The recent U.S. Federal Reserve rate cut has provided room for the PBOC to ease its own monetary policies without putting too much pressure on the yuan.

Analysts, including those from investment banks such as Goldman Sachs and UBS, have already downgraded their growth forecasts for 2024, but they see Tuesday’s measures as a positive step towards economic recovery. ING’s Chief Economist for Greater China, Lynn Song, believes there is potential for further easing in the coming months, especially if global central banks continue cutting rates.