Digital Yuan Completes Its First Cross-Border Oil Deal

In a groundbreaking milestone, the Chinese Central Bank Digital Currency (CBDC) known as the digital yuan or e-CNY has successfully facilitated a cross-border oil transaction. PetroChina International, one of China's leading oil companies, recently closed a deal to purchase 1 million barrels of crude using the digital yuan. This historic transaction, processed through the Shanghai Petroleum and Natural Gas Exchange (SHPGX), signifies a significant step forward for the adoption and integration of e-CNY in cross-border trade.

Although the exact value of the deal has not been disclosed, the successful completion of this cross-border oil transaction reinforces the viability and reliability of using the digital yuan as a payment method. It also highlights the commitment of the Shanghai municipal government and SHPGX to leverage the digital yuan's potential in facilitating international trade.

Expanding Influence of the Digital Yuan

China's push for greater acceptance of the digital yuan began earlier this year when the traditional yuan became the most widely used currency for cross-border transactions. The initial breakthrough occurred in the liquefied natural gas (LNG) market, where the digital yuan was used for a purchase between French energy company TotalEnergies and China National Offshore Oil Corporation (CNOOC) on SHPGX. This success set the stage for further adoption and integration of the digital yuan in international trade.

In the first quarter of 2023, the digital yuan accounted for 49% of China's cross-border transactions, surpassing the US dollar for the first time in history. This remarkable achievement demonstrates the growing confidence in the digital yuan's stability and efficiency as a cross-border payment instrument. The value of cross-border payments and receipts in yuan soared to a record $549.9 billion in March 2023, underscoring the rising prominence of the Renminbi (RMB) as a global currency.

Digital Yuan Testing and Expansion

Efforts to validate the digital yuan's capabilities for cross-border payments have been underway since December 2020, with the Hong Kong Monetary Authority (HKMA) and the People's Bank of China (PBOC) leading the pilot programs. Initial tests primarily focused on enabling tourists to utilize the digital yuan during their visits, with selected UBuy stores, the popular online retailer JD.com, and transportation services participating in the trials.

While the pilot programs had their fair share of challenges, including transaction processing difficulties and a relatively small number of participants, Chinese authorities have persisted in expanding the digital yuan's adoption across various cities. Use cases have diversified beyond retail, with the digital yuan now being accepted for payments of goods and services, SIM card-based e-CNY wallets, air ticket purchases, and even salary disbursements in the province of Jiangsu.

Looking ahead, the People's Bank of China (PBoC) is actively working on implementing unified QR code standards that would allow individuals to make digital yuan payments through popular providers such as Alipay, WeChat Pay, and UnionPay QuickPass. This development further streamlines the integration of the digital yuan into existing digital payment infrastructure, making it more accessible and convenient for both consumers and businesses.