In a US Senate hearing in February, Treasury Secretary Scott Bessent received a pressing question about how China could challenge “American financial leadership”.

The primary concern was the use of new technologies – including blockchain and digital assets – as Beijing seeks to promote China’s yuan, or renminbi, with officials expressing worries the currency could become an alternative to US-led financial infrastructure and the US dollar.

The Chinese authorities have a matrix of outbound digital tools: the central bank digital currency known as the e-CNY, a cross-border digital yuan transfer service and the central bank-coordinated Project mBridge, to name a few.

Bessent’s answer, however, placed Hong Kong in the spotlight. “They have a very large sandbox in Hong Kong … so I would not be surprised,” he said.

Many analysts also believe a breakthrough could be found in the world’s third-ranked international financial centre, with the city’s capital market depth eventually turning Beijing’s grand ambition into substantial demand on the ground.

“Hong Kong could become a laboratory for the interoperability of e-CNY, tokenised bank money, regulated stablecoins and tokenised assets – and ultimately a bridge between China’s next-generation financial infrastructure and global markets,” said Bo Tang, head of the institute for financial research at Hong Kong University of Science and Technology (HKUST).

The e-CNY bridge Unlike US dollar notes, which circulate globally, China’s offshore yuan supply is fairly limited and mainly scattered in cities such as Hong Kong, Singapore and London.

The use of e-CNY, one of the first sovereign currencies issued by a major central bank, is symbolic of Beijing’s hope of amplifying the yuan’s influence in the digital era and becoming more competitive on the global stage.

The People’s Bank of China, the nation’s central bank, established a digital currency institute in 2016 and piloted use of the sovereign digital currency in more than 20 cities nationwide.

While domestic pilot programmes accumulated 16.7 trillion yuan (US$2.5 trillion) in transactions by last November and deployed hundreds of application scenarios in a number of major cities, the Chinese central bank set its eyes beyond borders by launching the cross-border e-CNY transfer services (CBETS) platform earlier this year.

CBETS consolidated three formerly separate systems: an e-CNY cross-border digital payment platform, a blockchain service platform and a digital asset platform.

It provided overseas institutions – including central banks, commercial banks and payment firms – direct access to the digital yuan, and could process a wide range of cross-border activity from consumer transactions to business remittances, trade and financing settlements, said Mu Changchun, director of the PBOC’s digital currency institute, at a forum in June.

Zhu Min, former deputy managing director of the International Monetary Fund, set his sights higher, declaring the dawn of a “top-level global game” for digital currencies and smart payments. He predicted a long-term competition to sprout between US dollar stablecoins, central bank-backed euro stablecoins and China’s sovereign digital yuan.

CBETS was a “comprehensive” platform for the “highly strategic deployment” of e-CNY across the borders, he said at a Beijing forum in August.

On the other hand, the PBOC joined institutions in Hong Kong, Thailand and the United Arab Emirates to pilot the cross-border use of digital currencies under mBridge, a project initially incubated and coordinated by the Bank for International Settlements, the Switzerland-based bank for central banks. The goal was to address pain points in cross-border payments including high costs, low speed and operational complexities.

Project mBridge handled a total of 500 billion yuan across 49 participating commercial banks by the end of 2025, including 21 overseas or foreign institutions, according to data from China’s central bank.

The platform’s total transaction volume climbed to 600 billion yuan by June, Bank of China said in a statement in July.

When the e-CNY meets Hong Kong The overseas expansion of the yuan, physical or digital, relies considerably on Hong Kong, which is the world’s largest offshore centre for the currency.

Hong Kong had more than 1.1 trillion yuan in renminbi-denominated bank deposits by August, 1.27 trillion yuan in outstanding renminbi-denominated dim sum bonds in the first half of 2025 and hundreds of yuan liquidity facilities provided by Beijing.

It processed about 76 per cent of offshore yuan payments by value in June, according to the Society for Worldwide Interbank Telecommunication, the primary messaging system for international transactions also known as Swift.

The city’s intensifying efforts to create an ecosystem and use cases for the yuan could also pave the way for increased e-CNY use. Despite CBETS being based in Shanghai, Hong Kong is internationally positioned as an “access point” for overseas institutions.

In 2024, the CBETS predecessor was linked with Hong Kong’s Faster Payment System.

Digital yuan wallets opened by Hong Kong users, as measured by local phone numbers, rose to 80,000 by January 2026, and local merchandisers increased to 5,200. Meanwhile, Bank of China (Hong Kong), one of the city’s three note-issuing banks, said in June that it operated settlement wallets to facilitate cross-border e-CNY remittances through CBETS.

The bank also said it was the system’s first offshore fund custodian, offering liquidity allocation services for overseas participants. Project mBridge, in which Hong Kong is a founding member, was built upon an earlier Hong Kong-Thailand initiative that studied distributed ledger technology for wholesale cross-border fund transfers.

The new programme tests round-the-clock settlements with multiple digital currencies on a single common platform, the mBridge ledger blockchain.

The bottlenecks Although CBETS and mBridge have been effective in establishing infrastructure and reducing the friction of cross-border yuan settlement, experts are cautious about their ability to boost the globalisation of the Chinese currency.

“Payment technology can make it easier to use a currency, but it cannot by itself create international demand for that currency,” said HKUST’s Tang.

Crucial questions remain for yuan internationalisation beyond payment infrastructure, he said. “An overseas company may be willing to receive [renminbi] for trade, but it then has to decide what to do with that,” Tang explained.

“Can it invest the funds easily? Are there sufficiently deep and liquid assets? Can it hedge interest-rate and exchange-rate risk efficiently? And can it move capital in and out with sufficient predictability?”

Despite Chinese banks touting their experiments in yuan usage via the two initiatives, the true measure of their success will be meaningful usage by non-Chinese institutions, according to Winston Ma, adjunct professor and executive director of the Global Public Investment Funds Forum at New York University. “The real test is two-way use: whether non-Chinese firms choose to hold and settle in e-CNY, not just Chinese banks routing payments through their overseas branches,” he said.

Chinese authorities have also acknowledged the problem. CBETS participants consist primarily of overseas branches of Chinese financial institutions, while “truly systemically important” Western banks have yet to join, according to an October opinion piece published in China Reform Daily, a paper affiliated to National Development and Reform Commission, the country’s top economic planner.

While regulatory interoperability issues such as incompatible anti-money-laundering and know-your-customer rules continue to challenge both initiatives, geopolitical hurdles remain severe.

DLA Piper partner and fintech lawyer Kristi Swartz noted that Hong Kong was “particularly relevant” as it could provide offshore yuan liquidity and settlement infrastructure, test cross-border e-CNY use cases, link e-CNY infrastructure with global institutions and drive multilateral wholesale CBDC development.

However, a platform “perceived as closely aligned with a particular state or geopolitical bloc may attract limited participation outside that state’s principal economic partners”, she warned.

Saudi Arabia’s central bank was widely seen as “the next full participant” of the mBridge platform, but it confirmed in September that it had exited the programme.

It had taken part only on a proof-of-concept basis, which it successfully completed on May 13 last year, the bank said. The BIS also handed over the project to participating central banks in October 2024, claiming the platform was “at a level where the partners can carry it on by themselves”, while denying geopolitical considerations.

New yuan frontiers Yuan ecosystems and the ability to stimulate demand for the currency are viewed as unique advantages for Hong Kong, and the city government has set up more ambitious plans for the yuan in its first five-year development plan released in September.

“We will strive for a comprehensive scale‑up and continuous refinement of Hong Kong’s offshore [renminbi] business and ecosystem respectively,” it vowed.

Concrete actions to consolidate its status as an offshore yuan hub are set to follow, as Bonnie Chan Yiting, CEO of Hong Kong Exchanges and Clearing, said in a blog post on October 12 that yuan-denominated gold futures and stock trading were being planned.

Meanwhile, the city’s leaders will advance the development of emerging digital assets “in a rigorous manner”, including central bank digital currencies, stablecoins, as well as tokenised deposits, bonds and securities, according to the tasks outlined in the five-year plan.

The “bigger picture”, according to HKUST’s Tang, was not simply about digitising the RMB.

A new financial architecture requires money, assets and payment infrastructure to be increasingly digital, programmable and interoperable, he said. “Hong Kong has the potential to be one of the key places where these different systems meet,” Tang said.

While Beijing maintains a ban on cryptocurrency businesses on the mainland, it has given Hong Kong the green light to develop the sector.

Since late 2022, Hong Kong has put licensing regimes in place for centralised crypto exchanges and stablecoin issuers, pioneered the offering of tokenised government bonds, and allowed institutions to issue tokenised investment products.

This environment has created space for various forms of blockchain-based money to interact.

The e-CNY, for instance, represents “sovereign public money”, while regulated stablecoins function as a form of “programmable private money”, according to Tang. Tokenised assets, he added, “represent the asset side of the new financial system”. “Hong Kong is one of the few places where these different layers can potentially be tested within the same regulated financial ecosystem,” Tang said.

Such calls have also been echoed by some on the mainland.

In an article published earlier this month, Zhang Ming and Bao Hong – researchers at the Chinese Academy of Social Sciences and the Chinese University of Hong Kong, Shenzhen, respectively – said Hong Kong should tokenise its yuan-denominated dim sum bonds to build a sustainable digital financial ecosystem.

Tokenised yuan-denominated assets could bolster demand for Hong Kong’s regulated stablecoins, while the city could also evaluate using e-CNY as a settlement tool, they wrote.