Chinese Digital Yuan Makes Entry into Global Oil Trade

In a new milestone for the digital yuan, the Shanghai Petroleum and Natural Gas Exchange (SHPGX) has announced that the Chinese central bank digital currency (CBDC), commonly known as e-CNY, was used for the first time to settle an international crude oil transaction. PetroChina International, one of China’s leading oil and gas companies, purchased 1 million barrels of crude oil on October 19 in a move that signals a major advancement for the digital yuan.

The precise details of the transaction, including the seller and price, have not been disclosed. However, the significance of this development cannot be overstated. The use of the digital yuan in cross-border oil transactions is a pivotal moment for both the currency itself and the global movement towards de-dollarization.

This historic transaction is in response to a call by the Shanghai Municipal Party Committee and Municipal Government to apply the digital yuan to international trade, a directive that has the full support of the Chinese government. The fact that such a prominent state-owned enterprise chose to use the digital yuan for this transaction underscores the currency’s growing importance in the global economic landscape.

This development aligns with the broader efforts to increase the use of the yuan in cross-border settlements. Reports indicate that in the first three quarters of 2023, the use of the yuan for cross-border settlements surged by 35% year-on-year, reaching a total of $1.39 trillion. These substantial figures highlight the growing acceptance and recognition of the yuan in the international trade arena.

Furthermore, the digital yuan is playing a pivotal role in advancing China’s goals of expanding the international use of its currency, also known as the renminbi. While central bank digital currencies are being explored by numerous countries, China’s e-CNY is among the most advanced, with transactions totaling 1.8 trillion yuan as of June 2023.

As part of its drive for wider adoption, the Chinese government is working on enhancing the infrastructure for its CBDC, including the launch of the “e-CNY hard wallet.” The central bank is collaborating with companies like China Telecom and China Unicom to develop SIM card wallets that connect users’ mobile phones to their digital yuan wallets. This innovation aims to improve the safety, reliability, and convenience of digital transactions.