BEIJING, China: China is stepping up efforts to expand the use of its digital yuan both domestically and internationally, according to industry sources, as Beijing seeks to strengthen the currency's role in payments, trade and government spending.

The People's Bank of China (PBOC) has introduced a range of measures aimed at boosting adoption of the digital yuan, or e-CNY, including policy incentives for banks and directives encouraging wider use across sectors such as lottery draws, green electricity payments and fiscal spending.

Sources familiar with the plans said banks are also being encouraged to increase the use of digital yuan in cross-border transactions, particularly along routes linked to China's Belt and Road Initiative. Lenders are developing products such as loans, letters of credit and bills that can support digital yuan transactions.

The PBOC did not respond to a request for comment.

China's approach differs sharply from that of the United States, where President Donald Trump has backed stablecoins while prohibiting the domestic circulation of central bank digital currencies.

Some industry sources said Beijing's strategy is partly aimed at reducing dependence on a global financial system dominated by Western institutions and the U.S. dollar.

One source said the digital yuan could serve as a technological safeguard to help ensure China's trade flows continue during future geopolitical disruptions.

"The war has exposed the risks of dollar weaponization, highlighting the urgent need for de-dollarization among Middle East oil producers," brokerage China Securities Co said in a report. The firm added that the Iran conflict is accelerating the internationalisation of the yuan and could expand its influence "from trade into the realm of geopolitics."

Despite its ambitions, the digital yuan remains relatively small compared with traditional payment systems. Official data show cumulative digital yuan transactions reached 16.7 trillion yuan ($2.47 trillion) by November, while China's UnionPay card network processed 279 trillion yuan in transactions during 2025 alone.

"China and the U.S. are the two engines for the global economy and they're both pushing their own standards," said Xin Yan, chief executive officer of Sign, a company that builds digital infrastructure for governments and institutions. While China's digital yuan works well with banking systems, "it is not friendly for foreigners," Xin added.

Momentum increased earlier this year after China began allowing interest payments on digital yuan holdings and expanded the number of authorised operating banks to 22 from 10.

Industry sources said digital yuan deposits and account growth are now important metrics in evaluating banks, creating stronger incentives to promote adoption and develop new financial products around the currency.

To boost domestic use, authorities are testing applications based on smart contracts that automatically trigger payments when certain conditions are met. Pilot projects include lottery systems, prepaid cards, government spending programmes and supply-chain financing.

Officials are also testing the currency's ability to help detect medical insurance fraud and monitor green electricity consumption through detailed tracking of money flows.

Local governments have launched pilot programmes involving salary payments and healthcare disbursements, while the PBOC is considering a UnionPay-style clearinghouse to process digital yuan transactions more efficiently across banks.

Industry sources said the digital yuan is unlikely to displace dominant retail payment platforms such as Alipay and WeChat Pay. Instead, its long-term purpose is expected to focus on international business settlements.

Shanghai financial official Zhou Xiaoquan recently said the city is encouraging institutions to adopt mBridge, a central bank-backed platform linking China, Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia for cross-border transactions.

Still, sources cautioned that overseas adoption remains a major challenge. "For yuan internationalization to get traction, overseas counterparties must be willing to use it," one source said, warning that there is still "a long road ahead."