China and Central Bank Digital Currencies: The Impact on Trade

Every payment you send to a Chinese supplier passes through several banks, takes one to several days and loses a slice to fees and exchange margins. Central bank digital currencies promise to change that, and China, the UAE and Saudi Arabia are among the countries moving fastest. This guide explains what these currencies are, how they are changing cross-border settlement, what the geopolitics mean for your business, and what you can do about your own payments today.

Are we already using digital money?

In a sense, yes. When you pay by card, by bank transfer or by scanning a QR code with Alipay or WeChat Pay, the money is already quasi-digital: the transaction is converted and settled by technology, not by cash. What changes with a central bank digital currency (CBDC) is who issues and stands behind the digital money. Instead of a balance in a commercial bank or a payment app, a CBDC is a direct claim on the central bank itself, like a banknote in electronic form.

Retail and wholesale CBDCs

There are two kinds. A retail CBDC, such as China's e-CNY (the digital yuan), is used by individuals and shops for everyday payments. A wholesale CBDC is used only between central banks and commercial banks to settle large transfers. For an importer paying suppliers, wholesale CBDCs matter more, because they are what cross-border networks such as mBridge are built on.

What mBridge is and why the Gulf is involved

mBridge is a shared platform that links central banks so they can settle payments with each other directly in their own digital currencies, sharing liquidity without passing through a chain of correspondent banks. Its members include the central banks of China, Hong Kong, Thailand and the UAE, with Saudi Arabia joining in 2024. The project began under the Bank for International Settlements (BIS); the BIS stepped back in late 2024 and the member central banks continue to develop it.

The UAE has already used it for real payments: in January 2024 the UAE central bank made its first cross-border payment in digital dirham to China through mBridge, worth AED 50 million. For a Gulf trader, that is the signal to watch. The two markets you care about most, your home market and China, are both on the same experimental rail.

How CBDCs change cross-border settlement

The clearest effect is on cost and speed. Estimated fees on CBDC settlement run at about 0.1% to 0.3%, against about 0.3% to 0.5% for a traditional SWIFT transfer, and settlement can happen in real time or on the same day rather than in 1 to 3 working days. On a USD 100,000 container order, that difference is roughly USD 200 in fees, plus days of working capital released sooner.

Local currencies are already taking a larger share of some bilateral trade. About 90% of settlements between China and Russia, for example, are made in currencies other than the US dollar. Whether BRICS as a group will push this trend much further is still an open question; so far it has not happened at scale.

What this means for a Gulf importer today

Be realistic. mBridge is a network between central banks and selected commercial banks. You cannot yet walk into a branch in Dubai or Riyadh and ask to pay a Shenzhen factory in digital dirham. Most importers still pay by USD telegraphic transfer through SWIFT, and some now pay in yuan through China's cross-border interbank system (CIPS). Our article on the role of digital currencies in cross-border trade payments goes into the payment options in more detail.

The geopolitics behind digital currencies

Fragmented banking systems and regional blocs

The spread of CBDCs strengthens alternative cross-border networks. Instead of one interconnected system built around the US dollar, the world is moving towards regional blocs with their own digital rails. This challenges dollar dominance and shifts economic weight towards emerging centres, particularly China and the other BRICS economies.

Digital monetary sovereignty

CBDCs give central banks direct control over their money supply and payment flows, and reduce their dependence on private payment networks and on dollar-based systems such as SWIFT. When China's digital yuan is linked to platforms like mBridge, settlement in local currencies becomes faster and less costly, and intermediaries tied to Western financial infrastructure lose part of their role.

Digital currencies as diplomatic tools

Issuing countries gain economic independence and influence through interoperability standards and regional currency agreements, which in turn shape trade corridors and alliances. China promotes the e-CNY in Belt and Road countries as an alternative to dollar-based transactions. Critics point out that CBDC rails can also be used to bypass sanctions and financial scrutiny. Western powers have responded by backing dollar stablecoins and digital dollar projects, in what some describe as a digital currency cold war.

For you, the practical lesson is simple: a new payment rail does not remove sanctions rules. Your bank will still screen the supplier, the goods and the route, and a payment that breaks sanctions can freeze your account whatever currency it uses. Our guide to assessing geopolitical risks in your trade with China covers how to check this.

Where central banks are heading next

Central banks are putting more weight on regional cooperation and interoperability. Issuing a CBDC remains a sovereign decision, but there is growing agreement that cross-border functions and shared standards decide whether digital payments work. Alongside mBridge, the BIS-led Project Agorá brings together several central banks and commercial firms to test wholesale digital settlement for cross-border payments. The aim of both is to overcome time zone differences, different legal frameworks and incompatible technical systems.

For trade between the Gulf and China, set out in our article on bilateral trade between China and Arab countries, faster local currency settlement would reduce dollar conversion costs on both sides.

How to prepare your payments now

1. Work out what your payments cost today. Add up transfer fees, correspondent bank charges and the exchange margin on your last 5 supplier payments, as a percentage of the amount sent.
2. Ask your bank about yuan settlement. Find out whether it can pay suppliers in CNY through CIPS and whether that lowers your total cost compared with USD.
3. Ask about mBridge. Ask your relationship manager whether the bank participates in mBridge pilots or plans to offer digital dirham or digital riyal payments to business clients.
4. Talk to your suppliers. Many Chinese factories accept CNY and may give a better price in yuan because they avoid their own conversion cost. Agree the currency before the proforma invoice is issued.
5. Keep a compliant paper trail. Whatever the rail, match every payment to a contract, a proforma invoice and the supplier's registered company name.
6. Review this once a year. CBDC services are moving from pilot to production. Check again each year whether your bank offers them.

Checklist before you change how you pay suppliers

• The beneficiary account is in the supplier's registered company name, not a personal name.
• You know the full cost of the payment, including the exchange margin.
• Your bank has confirmed the route and expected settlement time.
• The supplier has confirmed in writing which currency and account they accept.
• The goods, the supplier and the destination pass sanctions and export control checks.
• Your accountant knows how to record payments in CNY for VAT and customs valuation at home.

Common mistakes about digital currencies and trade

• Confusing CBDCs with cryptocurrency. A CBDC is issued by a central bank and carries the same legal status as cash. Paying a supplier in a private crypto token is a different, much riskier matter.
• Expecting instant access. Cross-border CBDC settlement is still limited to central banks and selected banks; most businesses cannot use it directly yet.
• Assuming a new rail avoids sanctions. Banks still screen payments, and breaches carry the same penalties.
• Changing bank details on request. Fraudsters often ask importers to pay a new account or a new currency. Confirm any change by phone with a known contact before paying.

What to do this week

Pull the bank statements for your last five supplier payments and calculate what each one really cost you. Then call your bank and ask two questions: can you pay in yuan through CIPS, and does the bank take part in mBridge? Use the answers to decide whether to change the currency on your next order. If you want help reviewing your payment setup with Chinese suppliers, HiGreenPanda offers business consulting from Shenzhen and Shanghai.