- Digital yuan achieves groundbreaking milestone by being used in an oil transaction, signaling its growing global application.
- The use of the digital yuan in cross-border settlements increases by 35% in 2023, contributing to the de-dollarization movement.
- Collaborations with international partners, such as the Bank of China and First Abu Dhabi Bank, further enhance the digital yuan’s reach and potential.
The digital yuan, China’s central bank digital currency (CBDC) also known as the e-CNY, has achieved a significant milestone by being utilized for the first time in settling an oil transaction. The Shanghai Petroleum and Natural Gas Exchange (SHPGX) announced that PetroChina International successfully purchased 1 million barrels of crude using the digital yuan on October 19.
Advancing the Digital Yuan’s Global Application in Trade
This groundbreaking transaction was a response to the call made by the Shanghai Municipal Party Committee and Municipal Government to employ the digital yuan in international trade. The implementation of the CBDC in settling the oil transaction represents “another major step forward” for the digital yuan, as highlighted by the state-controlled China Daily.
The specific seller and the price of the transaction were not disclosed. For comparison, on October 19, the price of the “OPEC basket” of oil from 13 producers stood at $95.72 per barrel.
Promoting Yuan’s Usage in Cross-Border Settlements and De-Dollarization
The usage of the yuan in cross-border settlements has been steadily increasing, marking an overall major step for the currency’s international market presence and contributing to the ongoing global movement toward de-dollarization. China Daily reported that in the first three quarters of 2023, cross-border settlements denominated in yuan witnessed a significant year-on-year growth of 35%, totaling $1.39 trillion.
Expansion Beyond Oil: Digital Yuan’s Prior Experiences
Prior to this historic oil transaction, the yuan had already made its mark in the energy industry. In March, the Shanghai Petroleum and Natural Gas Exchange facilitated the first-ever liquefied natural gas (LNG) purchase using yuan, with French energy company TotalEnergies selling LNG to the China National Offshore Oil Corporation (CNOOC). Another LNG deal in yuan followed suit, this time between CNOOC and French multinational electric utility company Engie. Notably, these earlier transactions did not involve the digital yuan.
International Collaborations and Future Plans
In parallel with the digital yuan’s expansion in the energy sector, notable international collaborations have taken place. On October 19, First Abu Dhabi Bank announced a digital currency agreement with the Bank of China during the third Belt and Road Forum for International Corporation. This agreement signifies the participation of China and the United Arab Emirates, including Abu Dhabi, in the mBridge platform, which aims to facilitate cross-border transactions using CBDC. The minimum viable product launch of mBridge is anticipated to take place next year.
Furthermore, it is worth mentioning that Abu Dhabi previously signed an agreement with India in August to settle oil deals in rupees, further highlighting the evolving landscape of global oil transactions and currency preferences.
Conclusion
The successful usage of the digital yuan in settling an oil transaction signifies a groundbreaking achievement for China’s CBDC. As the yuan continues to gain traction in international trade and cross-border settlements, it plays a pivotal role in reshaping the global financial landscape and propelling the movement toward de-dollarization. With ongoing collaborations and plans for future expansion, the digital yuan’s influence is set to grow, fostering increased efficiency and innovation in the realm of digital currencies.
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