As the global race to develop central bank digital currencies heats up, Asia is leading the charge, with countries across the region driving some of the most advanced and varied experiments in digital finance.
Experts say CBDC pilot programmes and research initiatives are maturing quickly, as the likes of China, Thailand and Indonesia break new ground in their efforts to test both retail and wholesale digital currencies.
Richard Turrin, a Shanghai-based fintech consultant and author of Cashless: China’s Digital Currency Revolution, says Asia is the “CBDC capital of the planet” and expects to see digital currency use across the region rise over the next few years.
“This has all been spurred by China’s [digital yuan] innovation. We’re going to see some trade shift to local currencies using central bank digital currencies,” he says.
Nevertheless, national authorities are moving cautiously with their testing and implementation schedules, and China’s first-mover status has not been without its difficulties.
Domestic take-up of the e-CNY has been slow and remains a fraction of the country’s overall payment volumes. The latest data released by the People’s Bank of China shows total, cumulative digital yuan transaction volumes hit Rmb7tn ($986bn) by June 2024 across 17 provinces.
Although this is a near four-fold increase on the Rmb1.8tn recorded in 2023, it is a drop in the ocean compared with Rmb34tn worth of transactions processed by non-bank payment groups in 2023 alone.
Yet China’s CBDC is making important progress in its cross-border reach and capabilities. In May, Hong Kong permitted the opening of e-CNY wallets by its residents, while connecting its faster payment system to the digital currency – in a world first – to facilitate wallet top-ups.
“Hong Kong offers China the perfect playground for testing its CBDC on a cross-border basis because it is a sophisticated financial hub with deep ties to the mainland and overseas markets,” says Lauren Johnston, associate professor at the China Studies Centre, University of Sydney.
It comes as China, Hong Kong, Thailand and the United Arab Emirates push ahead with project mBridge, a multilateral CBDC platform for cross-border payments, devising an entirely new international monetary and payment network.
Saudi Arabia joined the consortium as a full member in June 2024, in a move that could boost commodity settlement via the e-CNY. China has already used its CBDC to settle cross-border transactions involving oil and precious metals.
“I suspect China will continue to work with a small number of countries to create a sort of digital currency test zone. Thailand, Hong Kong and the UAE are key because they offer opportunities to test the e-CNY in tourism, finance, and commodities, respectively,” says Johnston.
Regional progress
Elsewhere in Asia, CBDC development is also progressing at a steady clip, although use cases vary widely.
Lotte Schou Zibell, adviser, finance sector at the Asian Development Bank, says the region’s diverse economic needs and strategic priorities are shaping specific CBDC projects, including for financial inclusion, payment efficiency, and cross-border transactions.
“[There is] a clear divide in CBDC focus, with developing countries concentrating on retail CBDCs for financial inclusion [and] more developed economies exploring wholesale CBDCs to enhance interbank settlements and cross-border transactions,” says Schou Zibell.
Consistent with this, the Reserve Bank of Australia said in September it was focusing on wholesale CBDC development, citing greater potential economic benefits. But according to Schou Zibell, some countries, such as Thailand, are exploring both options.
The Bank of Thailand completed its retail CBDC pilot in April, noting its ability to “foster competition among financial service providers”, but signalled no “immediate plan” to deploy a digital currency. However, it remains active in cross-border wholesale trials under the mBridge scheme.
Similarly, Indonesia announced the second leg of its wholesale CBDC trials in August with Bank Indonesia, the central bank, stating that a retail digital rupiah will follow once the wholesale project is complete.
Michal Podolski, associate economic affairs officer at the UN’s Economic and Social Commission for Asia and the Pacific, says interest in CBDCs across the region “remains strong” but cautions that sizeable technological, social and governance issues are yet to be resolved.
Podolski expects retail CBDCs to “complement, rather than substitute, existing technologies” but says their adoption would depend on consumer perceptions of their benefits, costs and risks.
“Moreover, we cannot rule out the possibility of the emergence of distinct payment system blocs, as countries may pursue different paths to meet their individual operational, monetary policy and privacy objectives,” says Podolski.
