The Digital Yuan and the New Geography of Monetary Power

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The real obstacle to renminbi internationalisation has never been payments. It has always been convertibility.

If I hold RMB assets abroad, what can I actually do with them? Can I sell when I want? Move funds freely? Rebalance without friction? Capital controls make the answers uncertain, and that uncertainty makes holding RMB risky. Even when trade is settled in renminbi, ownership has remained fragile.

The digital yuan takes a different route.

Instead of internationalising ownership, China is internationalising use. The e-yuan allows RMB liquidity to operate inside a digital infrastructure where the rules are explicit and enforced by design: who can hold balances, how much can be held, for what purpose, and when conversion is allowed.

That shift changes the risk that matters. The problem is no longer exit risk (whether I can get out), but duration risk: whether I can safely hold liquidity between transactions without being forced to convert immediately.

This is where the interest-bearing design that has been just announced by the People's Bank of China (see Nikkei Asia) becomes important. By paying interest on e-yuan balances, the People’s Bank of China aims to make those balances usable and durable, supporting working capital and trade corridors without requiring full convertibility. Liquidity stays not because assets are freely tradable, but because the system itself is predictable.

This is internationalisation without convertibility: money spreading through infrastructure rather than open capital markets. It sounds contradictory, but it is precisely the experiment China is running with the digital yuan.

In my latest piece for the Herald Collection, I explain what the e-yuan is, why convertibility mattered historically, what changes with digital infrastructure, what is the role of the mBridge initiative, the importance of interest-bearing design as durability, and the geopolitical implications:

***The Digital Yuan and the New Geography of Monetary Power (*in Korean and English, no paywall).

It won’t replace the dollar. But it may make the dollar less necessary in specific corridors, offering a different kind of monetary power.

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