Red herring
Why Sec. Bessent shouldn't get distracted by crypto in China
Last week, Treasury Secretary Scott Bessent made an interesting comment that got front-page billing in the South China Morning Post but basically nowhere else.
US Treasury Secretary Scott Bessent said he “would not be surprised” if China were already looking into ways to challenge the US’ pre-eminence in digital assets, given Hong Kong’s efforts to develop the industry.
When testifying before the Senate Banking Committee on Thursday, Bessent said that there are “lots of rumours of Chinese digital assets” possibly being backed by something other than its currency yuan, such as gold, but that the US could not confirm such claims.
Secretary Bessent went on to argue that this was another reason to pass the crypto market structure bill, the Clarity Act, now. Immediately. Yesterday!
Here’s the interesting thing: China has blocked all crypto business activities (trading, transactions, mining, etc.) on the mainland, and Beijing is actively constraining Hong Kong’s ambitions to become a digital assets hub through regulatory pressure, policy oversight, and strict alignment with mainland priorities. Just last week, China banned all unauthorized offshore renminbi (RMB) stablecoins. Chinese regulators previously blocked Ant Group and JD.com from issuing stablecoins and directed large local brokers to halt any research publications endorsing stablecoins.
These are not the actions of a regime that is buck wild about becoming the crypto capital of the world. And that’s just on the regulatory front. In terms of appetite for digital assets, yes, Hong Kong has a sandbox, but it pales in comparison to the size of the American crypto market.
However, Secretary Bessent is on to something. The Chinese are absolutely trying to create an alternative to American financial dominance, but the threat isn’t coming from crypto.
China’s streamlined system for cross-border RMB
A little more than a decade ago, China launched the Cross-Border Interbank Payment System (CIPS) to help streamline cross-border RMB payments. Before CIPS existed, every time a Chinese entity wanted to send a payment to a different country in RMB, the transaction had to route through a fragmented network of correspondent banks and offshore clearing centers. These payments were rejected twice as often as other cross-border payments, typically due to translation issues between Chinese characters and Latin script alphanumeric systems used by the main international banking messaging networks like SWIFT.
CIPS fixed this with clearing, settlement, and messaging capabilities — messaging in particular (which includes instructions for clearing and settlement) made CIPS a partial alternative to the Western-dominated SWIFT, though that capability is limited to direct participants and only in RMB. This transformed China’s ability to use the RMB in cross-border payments. In 2019, CIPS processed only the equivalent of $5 trillion USD. In 2024, CIPS processed the equivalent of nearly $25 trillion USD.
All cross-border payment systems have a network effect that accelerates as more banks join. As of last June, CIPS had 1,690 participants (176 Direct Participants and 1514 Indirect Participants), across 121 countries. That month, CIPS forged its first direct partnerships with six foreign banks in the Middle East and Africa — crossroads regions increasingly looking for alternatives to dollar-based infrastructure. This was a huge development as direct participation had largely been limited to Chinese institutions (which indirect participants had to settle and clear through).
mBridge and the cross-border e-CNY
Sure, CIPS is concerning because it makes it easier to use RMB in traditional financial channels. But mBridge could represent a much larger channel for global trade and finance. mBridge is a joint project launched by the central banks of China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia, in partnership with the BIS, or Bank for International Settlements (which was originally established to supervise the settlement of WWI reparations!).
mBridge is a platform for central bank digital currencies, or CBDCs — digital money issued directly by central banks. It enables instant cross-border settlements without correspondent banking, SWIFT messaging, or the need for the U.S. dollar. Instead of routing through intermediaries, mBridge converts directly between national currencies on a shared ledger, cutting transaction costs by 50% to 70% and settling in seconds rather than the traditional three days. Unlike CIPS, which only processes RMB, mBridge is designed to be multicurrency — though the majority of volume on the platform is currently the e-CNY, China’s CBDC launched in 2021.
According to a paper by the Atlantic Council, mBridge has processed more than 4,000 cross-border transactions with a cumulative value of ~$55 billion, a near 2,500-fold increase in transaction value since 2022. Although still very small in comparison to traditional financial channels, this volume makes mBridge the largest cross-border wholesale CBDC project to date. The BIS left mBridge in 2024, stating:
. . . the project has been so successful that we can declare that we have graduated out. The BIS is leaving that project, not because it was a failure and not because of political considerations but instead because we have been involved for four years and it is at a level where the partners can carry it on by themselves.
In the retail payment space still dominated by Alipay and WeChatPay, the e-CNY is starting to crop up in cross-border payments. Laos has recorded its first cross-border e-CNY transactions from Chinese tourists, and China’s Yunnan Province — which borders Vietnam and Laos — has made cross-border digital yuan payments a key priority for 2026, including QR code payments at border crossings.
An interesting e-CNY upgrade
On January 1, 2026, China became the first country to launch an interest-bearing central bank digital currency, with verified e-CNY wallets now earning interest at rates matching ordinary demand deposits. This could give the digital yuan a structural advantage over zero-yield stablecoins in cross-border transactions. If there’s any China-related rationale for including stablecoin provisions in the Clarity Act, it would be here — but this misses the larger point (are you CNY what I’m CNY?).
China is making friends
Economic integration — i.e. more commerce between countries — creates the foundation for countries to settle trade in their own currencies rather than more liquid, international vehicle currencies like the dollar. China knows this and the residual effects of their efforts to to deepen its financial and trade ties with the world could be greater use of national currencies in trade.
Canadian Prime Minister Mark Carney made his first official visit to China in January 2026 — the first by a Canadian Prime Minister since 2017. His visit yielded a new partnership focused on energy, clean technology, and trade, with Canada aiming to increase exports to China 50% by 2030. China has recently signed similar partnerships across the globe, including a new ASEAN free trade agreement in October.
Beijing wants options
Gerard DiPippo of RAND makes an excellent point in a recent Geoeconomic Competition podcast.
“If China wants to become a financial superpower, they certainly need to have a reserve currency. However, Beijing knows that there is really no prospect of the RMB replacing the dollar. More importantly they are not trying to do that. They are trying to build up enough diversification to give China optionality.”
This is the strategy Bessent needs to be focused on. China is building parallel rails so they don’t need dollar permission for trade with willing partners: CIPS for messaging and settlement; mBridge for instant cross-border CBDC transactions; bilateral partnerships that deepen trade ties and create natural incentives to settle in local currencies; an interest-bearing digital yuan that could make holding RMB for trade purposes genuinely attractive. These are the actions of a regime that wants to control its own financial destiny.
Beijing is moving forward with its digital asset of choice. It’s not gold-backed crypto. It’s a CBDC running on scalable payment infrastructure, backed by bilateral agreements, and now offering yield. Yes, we should regulate the crypto industry and Godspeed to everyone in Washington. It will, in the long run, make the industry more competitive and, of course, maintain the U.S.’s enormous lead! But let’s not conflate a regulatory sandbox in Hong Kong with China’s deadly serious efforts to rewire international trade settlement — and take share from the U.S.1
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