China Proposes Asian Digital Currency to Reduce USD Dependence

Exploring Regional Currency Cooperation

Researchers from a Chinese state-run think tank have suggested the establishment of an Asia-wide digital currency, dubbed the “Asian yuan token,” aimed at decreasing reliance on the U.S. dollar. Spearheaded by Liu Dongmin, Song Shuang, and Zhou Xuezhi from the Chinese Academy of Social Sciences (CASS), their views were published in the World Affairs journal, proposing a collaborative monetary framework among Asian nations.

A Pegged Digital Currency

The proposed Asian yuan token would rely on distributed ledger technology (DLT)—similar to current central bank digital currencies (CBDCs)—and be pegged to a basket of 13 currencies. This basket would consist of all 10 member nations in the Association of Southeast Asian Nations (ASEAN), alongside China’s yuan, Japan’s yen, and South Korea’s won. This strategic approach aims to promote economic integration and reduce single-currency vulnerabilities.

Foundations for Cooperation

The researchers noted that over 20 years of enhanced economic integration in East Asia have paved the way for greater currency cooperation. They asserted, “The conditions for setting up the Asian yuan have gradually formed,” highlighting the evolution of regional economic ties.

Increasing Popularity of Digital Transactions

The USD’s dominance—and more recently, cryptocurrencies—has become increasingly prevalent for business transactions, remittances, and as a hedge against inflation in Southeast Asia. The push for a more localized digital currency reflects a desire to create financial independence while responding to the growing adoption of digital currencies across the region.

Progress in China’s CBDC Initiatives

This research follows a significant milestone in China’s CBDC efforts, as the Bank of China announced on October 10 that its e-CNY had facilitated around $14 billion in transactions, equating to approximately 100 billion yuan. As of now, about 5.6 million merchant stores support the digital yuan, illustrating its rapid integration into the existing economy.

Collaboration on DLT-Backed Cross-Border Payments

Additionally, China is participating in Project Inthanon-LionRock, a DLT-backed CBDC trial focused on cross-border payments, collaborating with the central banks of Thailand, Hong Kong, and the United Arab Emirates. In September, this trial achieved “successful” transactions exceeding $22 million on its “Multiple CBDC Bridge” platform, supervised by the Bank for International Settlements (BIS). This consolidation of cross-border banking efforts points to an increasing trend toward digital financial collaboration in Asia.

Looking Forward

As the push for an Asian yuan token gains traction, it signals a broader trend toward regional financial independence and cooperation. The evolving landscape of digital currencies, coupled with ongoing CBDC experiments, underscores the critical role of economic integration in shaping the future of Asia’s monetary systems.