As the People’s Bank of China (PBoC) inches toward a nationwide rollout of its central bank digital currency (CBDC), state-owned enterprises are turning to the digital yuan to settle cross-border payments.

Local news outlets have reported the digital yuan’s deployment in an international deal involving precious metals, highlighting China’s resolve to ditch the U.S. dollar as the primary mode of settlement. The deal involving the Shanghai branch of the Bank of China (NASDAQ: BACHF) and the Shanghai Gold Exchange saw 100 million digital yuan ($14 million) change hands for gold.

Other participants in the first-of-its-kind deal include the Shanghai Financial Exchange International Board and the Bank of China (Hong Kong), with participants pledging increased usage of the digital yuan for international transactions.

“The account will contribute financial strength to support Shanghai’s in-depth implementation of the free trade pilot zone promotion strategy and promote the quality and upgrading of the international trade center,” said a representative from the Bank of China.

The state-owned bank also played a pivotal role in the recent import of iron ore by Baowu Group in a move marking the introduction of the digital yuan in commodities. In a strong show of support for the digital yuan, the Bank of China has partnered with BNP Paribas (NASDAQ: BNPQF) to explore novel use cases for the CBDC.

In early November, state-owned entities teamed up to deploy the digital yuan in a multi-million crude oil deal. Settled by the Shanghai Petroleum and Natural Gas Exchange (SHPGX), the deal involved the state-owned PetroChina International Corp Ltd and an unnamed foreign vendor for the purchase of 1 million barrels of crude oil.

State-owned entities in China make up nearly 30% of China’s gross domestic product (GDP) and contribute a large chunk of the country’s bilateral trade. Pundits submit that government-backed enterprises’ reliance on the digital yuan sets the CBDC up for success in both domestic and international use cases.

On the domestic side of things, the digital yuan has seen applications in retail and transport sectors, with the Chinese banking regulator lacing the mobile application with new functionalities to compete favorably with private payment alternatives.

A focus on cross-border transactions

Apart from the success attained by its state-backed entities, China is still doubling down on experiments involving cross-border transactions with CBDCs.

In April, the country rolled out a plan to deploy the digital yuan in its Belt and Road Initiative in Xuzhou and transactions within the Guangdong-Hong Kong-Macao Greater Bay Area.

“The Hong Kong Monetary Authority is working with the mainland’s central bank, the People’s Bank of China, to test the digital yuan as a cross-border payment tool in Hong Kong,” said Hong Kong Monetary Authority (HKMA) Deputy CEO Darryl Chan.

Previous studies have seen the PBoC team up with the Bank for International Settlements (BIS) and other central banks to explore cross-border payment capabilities for retail CBDCs.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch Lise Li: BSV Blockchain in China

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