China Leverages Digital Yuan in Belt and Road, Integrating LCs to Challenge Dollar Dominance

China’s central bank, the People’s Bank of China (PBOC), is aggressively expanding the use of its digital yuan (e-CNY) for both domestic and cross-border transactions, with a particular focus on routes associated with the Belt and Road Initiative, according to a Reuters exclusive from May 30, 2026. This strategic push includes encouraging banks to develop compatible financial products, such as loans, letters of credit, and bills, to facilitate the broader adoption of the digital currency.

A primary driver behind this initiative is China’s ambition to lessen its dependence on a global payments system largely dominated by Western institutions and the U.S. dollar. This move is seen as a technological safeguard against potential geopolitical shocks and the ‘dollar weaponization’. While cumulative digital yuan transactions have reached 16.7 trillion yuan ($2.47 trillion) since its 2019 debut as of November, this figure remains substantially lower than China’s UnionPay card transactions, which hit 279 trillion yuan in 2025 alone.

The Chinese government has demonstrated its commitment to wider adoption by increasing the number of authorized operating banks to 22. A significant area of focus for cross-border payments is with ASEAN countries. However, overseas counterparties have shown limited enthusiasm for adopting the digital yuan thus far.