China’s digital yuan has spent years being judged by the wrong test. Most attention has focused on whether ordinary users would abandon Alipay or WeChat Pay for a state-backed wallet. The more consequential shift is now taking place deeper inside the financial system, where digital money meets bank balance sheets and cross-border settlement.
From 1 January 2026, China introduced a new management framework that moves the e-CNY towards “digital deposit money.” Commercial banks must pay interest on e-CNY wallet balances under prevailing deposit-rate rules, incorporate those balances into asset-liability management, and protect them through deposit insurance. The framework also places e-CNY operations within reserve-requirement calculations. These changes give users an economic reason to hold e-CNY and give banks a clearer institutional role in distributing it.
The interest-bearing feature changes the experiment. An e-CNY wallet previously struggled to offer a compelling advantage in a market already organized around private payment super apps. Deposit treatment gives the digital yuan a place inside the banking system, closer to tokenized deposits and bank-based settlement. China’s retail weakness may therefore be producing a more strategically useful form of digital currency.
The next phase of CBDC development is moving towards financial infrastructure.
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mBridge makes that shift visible. The multi-CBDC platform was developed by the monetary authorities of China, Hong Kong, Thailand, and the United Arab Emirates, with Saudi Arabia joining as a full participant in 2024. It reached its Minimum Viable Product stage that year and was designed to support instant cross-border payments and settlement through a shared distributed-ledger platform.
A deposit-like e-CNY fits this environment more naturally than a cash-like retail instrument. Corporate payments, trade settlement, and interbank flows require bank participation, liquidity management, and legal certainty. mBridge gives China a channel through which the digital yuan could gain relevance without winning the domestic wallet contest.
The strategic story is monetary hedging. China is building additional settlement capacity while remaining embedded in the existing financial order. The dollar still represented 57.13 per cent of global foreign-exchange reserves in the first quarter of 2026, compared with 1.99 per cent for the renminbi. Those figures place any immediate challenge to dollar dominance far beyond the current evidence.
Hedging works through a gradual multiplication of routes. China already operates the Cross-Border Interbank Payment System, or CIPS, for renminbi transactions. mBridge adds another layer by exploring direct multi-CBDC settlement among participating institutions. Each layer reduces the cost of over-reliance on a single external channel.
The geopolitical logic became clearer after financial messaging entered sanctions policy. SWIFT disconnected designated Iranian banks in 2012 following an EU decision and removed designated Russian entities in 2022 under subsequent EU regulations. These episodes showed governments that financial connectivity can be restricted during geopolitical confrontation.
This emerging capacity can be described as settlement optionality: keeping several credible payment and settlement routes available when a dominant channel becomes politically, financially, or operationally costly. The concept concerns resilience and bargaining power. A country with several usable connections has more room to absorb shocks, negotiate terms, and keep trade moving.
ASEAN offers the clearest laboratory for this idea. The region combines different levels of financial maturity, trade exposure, and CBDC readiness within one dense economic space. Singapore has developed wholesale settlement and tokenization experiments through Project Ubin and related initiatives. Thailand participates directly in mBridge. Indonesia has completed the first proof-of-concept stage for a wholesale digital Rupiah cash ledger, while the Philippines has tested wholesale CBDC applications through Project Agila. Cambodia’s Bakong has built a blockchain-based payment infrastructure linking banks and payment providers.
Placed together, these initiatives form a portfolio of monetary experiments. Wholesale CBDC, instant-payment connections, QR links, and local-currency arrangements are developing at different speeds. ASEAN can benefit from this portfolio even as its members adopt different technologies and timetables. Interoperability can turn uneven readiness into regional learning.
Project Nexus shows a parallel route based on instant-payment connectivity. India, Malaysia, the Philippines, Singapore, and Thailand established the Nexus Global Payments entity in Singapore to advance a multilateral scheme linking domestic instant-payment systems. Indonesia participates as a special observer after contributing to earlier phases. The architecture standardizes how national systems connect, allowing each participant to reach the wider network through one integration.
The ASEAN Digital Economy Framework Agreement adds an institutional layer. ASEAN announced the substantial conclusion of DEFA negotiations on 24 October 2025, with the agreement expected to support regional digital integration, digital payments, data governance, and cybersecurity. These rules can provide the wider policy environment for payment interoperability to scale.
ASEAN’s monetary hedging is emerging through accumulation. Its central banks are adding connections while preserving existing ones. That approach reflects the region’s wider geopolitical habit: maintaining policy space across competing powers, institutions, and standards.
The same pressure is producing regional responses elsewhere in the Global South. Africa’s Pan-African Payment and Settlement System now spans 28 countries and more than 190 banks and fintechs. PAPSS enables cross-border payments in local currencies, reducing the need to route intra-African transactions through external hard currencies.
The Arab region has developed Buna, a cross-border and multi-currency payment platform owned by the Arab Monetary Fund. PAPSS and Buna signed a memorandum in 2022 that laid the foundation for interoperability between their platforms and a payment gateway linking Africa with the Arab region. The agreement matters because it moves the discussion from building separate regional rails towards designing connections between them.
BRICS adds a looser political layer. Under Brazil’s 2025 presidency, the group advanced discussions on local-currency trade and the convergence of members’ payment systems. Brazilian officials also rejected speculation about an imminent common BRICS currency, keeping the agenda focused on payment instruments, lower transaction costs, and practical connectivity.
These projects vary widely. PAPSS grew from continental trade integration. Buna emerged from an Arab multi-currency settlement agenda. Nexus connects instant-payment systems. mBridge uses a shared multi-CBDC platform. ASEAN layers several approaches at once. Their convergence lies in the search for more room to maneuver inside a fragmented financial order.
The connections between these systems may become as important as the systems themselves. Interoperability determines which currencies can move, which institutions gain access, how liquidity is managed, and where compliance responsibilities sit. Technical design therefore carries geopolitical consequences.
Regional blocs have more leverage in this negotiation than individual developing economies. They can aggregate transaction volume, align standards, conduct joint testing, and set shared expectations for data access, anti-money-laundering controls, dispute resolution, and operational resilience. Countries entering separately are more likely to accept rules designed elsewhere.
ASEAN has a particular advantage here. It can compare mBridge with Nexus, develop local-currency settlement alongside existing correspondent networks, and use DEFA to strengthen the policy environment around digital connectivity. This creates practical experience across several architectures, a valuable asset while standards remain unsettled.
Alternative rails still create exposure. Faster settlement may come with new dependencies on foreign technology, governance frameworks, or dominant currencies inside the platform. The distribution of power will be shaped by transaction data, validation rights, access criteria, and the ability to influence future rule changes. Smaller economies need institutional capacity to understand those choices before participation becomes difficult to reverse.
For the wider Global South, settlement optionality offers a grounded form of strategic autonomy. It asks countries to widen their financial choices, build regional capacity, and negotiate the terms of connection. Monetary weight remains unequal, but infrastructure design creates additional sites where bargaining can occur.
China’s digital yuan pivot is an early signal of this transition. Digital currencies are moving into deposits, bank balance sheets, and cross-border settlement. At the same time, regional payment systems are expanding and beginning to explore interoperability beyond their own borders.
ASEAN may become the most revealing laboratory because several models are developing inside one regional ecosystem. PAPSS, Buna, Nexus, and the BRICS payment agenda show that the pressure reaches much further. Across the Global South, states are assembling additional routes before geopolitical rivalry makes financial concentration more costly.
Standards, data rules, compliance arrangements and dispute mechanisms are still being shaped. ASEAN and other regions of the Global South have a narrow but important window to influence how these systems connect—and how power will be distributed across the emerging settlement architecture.
Source: Original Article
