The Moat and the Mutiny, China’s Yield-Bearing e-CNY, the mBridge Experiment, and the Long War Against Dollar Hegemony
For decades, the dollar’s dominance of the global financial system has been treated as a fact of nature—as stable and unchangeable as the orbit of the planets. Economists have documented its supremacy; historians have traced its rise; policymakers have organised their strategies around its persistence. The dollar is the currency of international trade, the denominator of global commodities, the preferred reserve asset of central banks, and the medium of exchange for nearly 90 per cent of all foreign exchange transactions. To speak of “de-dollarisation” has been, for most of the post-war period, to engage in a speculative fantasy, a hobby of anti-imperial rhetoricians and fringe economists with no grounding in the actual mechanics of global finance.
That fantasy is now being tested by engineering.
The test is not, as Andy Mukherjee argues in the accompanying analysis, occurring in the visible domain of payment flows or reserve composition. It is occurring in the hidden infrastructure of financial plumbing—the conduits through which value moves across borders, the protocols that settle claims between banks, the digital currencies that are beginning to circulate alongside traditional money. The cumulative effects of these alterations will take years to manifest, and their ultimate significance remains uncertain. But the direction of travel is unmistakable: the world’s second-largest economy, armed with the world’s most sophisticated digital payments infrastructure, is systematically constructing alternatives to the dollar-centric order.
The recent transformation of China’s e-CNY from interest-free digital cash to a yield-bearing deposit product is a pivotal development in this long campaign. Until now, the adoption of China’s central bank digital currency (CBDC) was hampered by a fundamental disincentive: even state workers who received their salaries in e-CNY tokens would immediately transfer them to interest-bearing bank accounts. The digital currency was a medium of exchange but not a store of value; it circulated but did not accumulate. By enabling commercial banks to offer interest on e-CNY holdings, Beijing has eliminated this disadvantage. For Chinese savers, e-CNY is now functionally equivalent to a conventional deposit account, with the added benefits of digital convenience and state backing.
This is, as Mukherjee notes, a “defensive step”—a moat against the threat of dollarisation through stablecoins, which were prohibited from offering yields by last year’s US Genius Act. But a defensive posture, however effective, will not dislodge the dollar from its hegemonic position. That requires offensive action: the construction of cross-border payment infrastructure that enables the yuan to circulate internationally, bypassing both the dollar and the SWIFT messaging system that has been weaponised by the United States and its allies.
Enter mBridge.
The mBridge Experiment: From Pilot to Platform
When Mukherjee first wrote about mBridge in 2022, it was a modest pilot project of the Bank for International Settlements (BIS) and the monetary authorities of China, Hong Kong, Thailand, and the United Arab Emirates. A handful of financial institutions from these jurisdictions had assembled on a shared blockchain platform, exchanging prototype central bank digital currencies to settle cross-border claims on behalf of corporate clients. The project was experimental, small-scale, and largely invisible to the broader financial community.
Three years later, mBridge has been transformed beyond recognition. Saudi Arabia joined the platform in 2024. The BIS, under pressure from Western members uncomfortable with the project’s geopolitical implications, withdrew its participation. But the partner countries pressed forward without it. Activity has swelled to more than 4,000 cross-border transactions with a cumulative value of approximately $55.5 billion—a 2,500-fold increase from 2022. The e-CNY accounts for more than 95 per cent of the settlement value.
These numbers, while still modest relative to the $7.5 trillion in daily foreign exchange turnover, are no longer negligible. They represent a functioning, scalable alternative to the dollar-SWIFT infrastructure for a significant and growing volume of international trade. And they are attracting attention from other major economies. According to Reuters, India—which has developed its own CBDC—is exploring a proposal to link the digital currencies of the BRICS+ grouping of emerging markets. The technical and political obstacles to such a linkage are formidable, and India’s enthusiasm may be tempered by its recent concessions to Washington on Russian oil imports. But the very fact that such a proposal is under consideration signals a fundamental shift in the global payments landscape.
The Dollar’s Vulnerability: Confidence, Yields, and the Trump Shock
The dollar’s dominance has never rested solely on economic fundamentals. It has rested, equally importantly, on confidence—the belief of investors, corporations, and governments that U.S. Treasury securities are the safest and most liquid assets in the world, and that the dollar will retain its value and utility regardless of geopolitical turbulence or domestic political dysfunction.
That confidence has been eroded by the Trump administration’s weaponisation of the dollar-based financial system. Sanctions have been imposed with increasing frequency and severity, excluding targeted countries from dollar clearing and SWIFT messaging. Foreign holders of U.S. Treasury securities have watched with alarm as the world’s most powerful economy has repeatedly threatened to default on its obligations for partisan advantage. The administration’s tariff wars and unilateral trade actions have signalled that the United States is prepared to use its economic dominance as a coercive instrument, indifferent to the collateral damage inflicted on allies and adversaries alike.
The result, as New York University professors Viral Acharya and Toomas Laarits have documented, is an unprecedented phenomenon: a loss of confidence in the long-term safety of Treasury securities, even as their near-term benefits remain valued. The unusual spike in U.S. bond yields following Trump’s tariff announcements reflected not merely expectations of higher inflation or tighter monetary policy but a genuine erosion of the “safe asset” premium that the dollar has long enjoyed. Investors fled to gold—an asset with no yield, no credit backing, and no utility beyond its symbolic status as the ultimate store of value.
Gold, however, cannot serve as a payments currency. It cannot be integrated into the high-velocity, low-cost digital payment systems that modern commerce demands. The dollar’s vehicle-currency status—its role as the intermediary through which funds are converted from one currency to another—is not easily displaced. About two-fifths of the dollar’s 89 per cent share in foreign exchange trading is attributable to this vehicle function, which is self-reinforcing: the more traders use the dollar as an intermediary, the more liquid it becomes, and the more attractive it is for future transactions.
Yet this self-reinforcing dynamic also contains the seeds of its own dissolution. A superior payments infrastructure that enables direct currency-to-currency settlement, bypassing the dollar entirely, would undermine the vehicle-currency advantage. This is precisely what mBridge—and the broader ecosystem of CBDC-based cross-border payment systems—is designed to achieve. An interest-bearing e-CNY that can settle transactions within China and across borders without passing through New York correspondent banks or SWIFT messaging is not merely a competitor to the dollar; it is an alternative to the entire architecture that sustains dollar hegemony.
The Political Economy of De-Dollarisation: Interests, Incentives, and Obstacles
The construction of alternative payments infrastructure is a necessary condition for de-dollarisation, but it is not sufficient. The dollar’s dominance is also sustained by a complex web of interests and incentives that are not easily dissolved.
For international businesses, the dollar offers predictability and efficiency. The costs of switching to an alternative currency or payment system are substantial, and the benefits are uncertain. For central banks, dollar reserves provide liquidity and security in times of crisis; the depth and breadth of the U.S. Treasury market are unmatched by any alternative. For emerging market economies, dollar borrowing enables access to international capital markets that would otherwise be closed; the development of local currency bond markets is a slow and difficult process.
These structural advantages are not immutable, but they are remarkably persistent. The euro was launched in 1999 with the explicit ambition of challenging the dollar’s dominance; a quarter-century later, its share of global reserves and payments remains less than half that of the dollar. The Chinese yuan has made significant progress in internationalisation over the past decade, yet its share of global payments still hovers around 3 per cent. The inertia of the existing system is immense.
What has changed is the political will to overcome this inertia. The Trump administration’s aggressive unilateralism has alienated both allies and adversaries, creating a constituency for alternatives to dollar dependence. The weaponisation of financial sanctions has demonstrated the risks of excessive reliance on a single currency and payment system. The development of digital currencies and blockchain-based settlement platforms has provided the technical means to construct alternatives. These three factors—political grievance, strategic anxiety, and technological possibility—have converged to create the most serious challenge to dollar hegemony since the collapse of the Bretton Woods system in 1971.
The Indian Dilemma: Strategic Autonomy and Tariff Prison
India’s position in this emerging landscape is deeply ambivalent. As a founding member of BRICS and a champion of multipolarity in global governance, New Delhi has rhetorically supported efforts to reduce dependence on the dollar and create alternatives to Western-dominated financial institutions. Its development of a domestic CBDC, the digital rupee, reflects both a desire to participate in the technological frontier of payments innovation and a hedging strategy against the risks of dollar-centricity.
Yet India’s recent concessions to the Trump administration—including reported commitments to halt imports of Russian oil—illustrate the constraints on its strategic autonomy. The promise of tariff relief has proven sufficient to extract significant policy adjustments from a government that has long prided itself on its independence from great-power pressure. If the price of escaping the “tariff prison” is acquiescence in Washington’s campaign against alternative payment systems that include Russia and Iran, India’s enthusiasm for mBridge-style initiatives may prove ephemeral.
This is not a criticism of Indian policymakers; it is a recognition of structural reality. The dollar’s dominance is not maintained solely by U.S. power but also by the absence of credible alternatives. Countries that seek to reduce their dependence on the dollar must be prepared to accept the costs and risks of charting an independent course. Those costs are real and substantial; they include reduced access to U.S. financial markets, exposure to secondary sanctions, and the challenges of operating in a less liquid, less efficient payments environment. For countries with significant economic vulnerabilities or limited geopolitical room for manoeuvre, these costs may be prohibitive.
The question is whether the gradual construction of alternative infrastructure will, over time, lower these costs to the point where a critical mass of countries is prepared to switch. This is not a binary choice between full dependence and complete autonomy; it is a spectrum of partial, incremental adjustments. Countries can maintain substantial dollar reserves while gradually diversifying their holdings. They can continue to use SWIFT for most transactions while developing CBDC-based corridors for specific trade flows. They can hedge their bets, maintaining relationships with both the incumbent system and its emerging alternatives.
This is precisely what China is doing with mBridge: not declaring war on the dollar but building a parallel system that offers an alternative for those who need or desire it. The cumulative effect of these incremental adjustments, sustained over years and decades, could be a fundamental reconfiguration of the global payments architecture.
Conclusion: The Plumbing and the Power
The dollar’s dominance has always rested on two foundations: the depth and liquidity of U.S. financial markets, and the centrality of the dollar in the plumbing of international payments. The first foundation remains solid; there is no near-term prospect of any currency or asset displacing the U.S. Treasury market as the world’s premier store of value. But the second foundation is more vulnerable than it appears.
The dollar’s role in payments plumbing is not a law of nature; it is a legacy of historical accident and institutional inertia. The SWIFT system was developed in the 1970s to facilitate dollar-denominated trade; its architecture reflects the dollar-centric world of its origin. The correspondent banking relationships that enable dollar clearing are costly, slow, and opaque. The system is ripe for disruption by technologies that enable faster, cheaper, and more transparent cross-border settlement.
This is the significance of mBridge and the interest-bearing e-CNY. They are not yet threats to the dollar’s dominance; their scale remains trivial relative to the $7.5 trillion daily turnover of foreign exchange markets. But they are proofs of concept—demonstrations that alternative payments infrastructure can be built, scaled, and operated. Each transaction settled on mBridge is a small erosion of the network effects that sustain dollar hegemony. Each country that joins the platform reduces its dependence on the dollar-SWIFT axis. Each incremental improvement in the technology lowers the costs of switching.
The process of de-dollarisation, if it occurs at all, will be slow, uneven, and reversible. It will not be announced by a single dramatic event—a collapse of the dollar, a declaration of war on the greenback, a mass exodus from Treasury securities. It will be measured in basis points of reserve composition, percentage points of trade settlement, and the gradual accretion of alternative infrastructure. It will be visible only to those who are looking in the right places: not at the headlines but at the plumbing.
Andy Mukherjee’s analysis is a guide to that hidden landscape. It reveals that the war against dollar hegemony is being fought not with conventional weapons but with code and consensus mechanisms, digital wallets and distributed ledgers. Its outcomes will be determined not by the size of armies or the eloquence of diplomats but by the efficiency of algorithms and the trustworthiness of networks. It is a war that China is determined to wage, that the United States has barely noticed, and that the rest of the world is watching with a mixture of hope, fear, and calculation.
The dollar’s reign has been long and, for many, beneficial. But no currency dominates forever. The pound sterling’s hegemony endured for a century before it was supplanted by the dollar; the dollar’s hegemony has already exceeded that span. The question is not whether it will eventually be displaced but when, by what, and with what consequences. The mBridge experiment offers a provisional answer: not soon, but sooner than previously imagined; not by a single rival currency but by a multipolar system of digital monies; not through catastrophic collapse but through the slow, patient accretion of alternative infrastructure.
The plumbing is being altered. The effects will take time to show. But they are already visible to those who know where to look.
Q&A Section
Q1: What is the significance of China’s decision to make e-CNY a yield-bearing product, and why is it described as a “defensive step”?
A1: The significance is that it eliminates a fundamental disadvantage that previously hampered e-CNY adoption. Until this change, even Chinese state workers who received salaries in e-CNY tokens would immediately transfer them to interest-bearing bank accounts, treating the digital currency solely as a medium of exchange rather than a store of value. By enabling commercial banks to offer interest on e-CNY holdings, Beijing has made it functionally equivalent to conventional deposit accounts, removing the disincentive to hold and accumulate the digital currency. This is described as a “defensive step” because it creates a moat against dollarisation through stablecoins. The 2024 US Genius Act prohibits stablecoin issuers from offering yields, creating a potential competitive advantage for interest-bearing CBDCs. China’s move neutralises this advantage, ensuring that domestic savers have no reason to switch to dollar-denominated stablecoins. However, Mukherjee argues that this defensive posture, while necessary, is insufficient for challenging dollar hegemony internationally. Offensive action—building cross-border payment infrastructure that enables the yuan to circulate globally—is required for that larger strategic objective.
Q2: What is mBridge, and how has it evolved from its origins as a BIS pilot project to its current status?
A2: mBridge is a blockchain-based cross-border payments platform initially developed as a pilot project by the Bank for International Settlements (BIS) and the monetary authorities of China, Hong Kong, Thailand, and the UAE. Participating financial institutions used the platform to exchange prototype central bank digital currencies (CBDCs) to settle cross-border claims for corporate clients. The project has undergone dramatic transformation. Saudi Arabia joined in 2024. The BIS, facing pressure from Western members concerned about geopolitical implications, withdrew its participation that same year, but the partner countries continued development independently. Activity has expanded to over 4,000 transactions with cumulative value of approximately $55.5 billion—a 2,500-fold increase from 2022. The e-CNY accounts for more than 95 per cent of settlement value. The platform is reportedly being considered for expansion, with India exploring a proposal to link the CBDCs of BRICS+ emerging markets. mBridge represents a functioning, scalable alternative to the dollar-SWIFT infrastructure for international trade settlement, bypassing both the US currency and the messaging system that has been weaponised for sanctions enforcement.
Q3: What evidence do NYU professors Viral Acharya and Toomas Laarits provide of erosion in confidence in dollar assets, and why is this significant?
A3: Acharya and Laarits analysed the unusual spike in US Treasury bond yields following President Trump’s tariff war announcements. Their conclusion is that “investors lost confidence specifically in the long-term safety properties of Treasuries while still valuing their near-term benefits.” This is a novel and significant phenomenon. Historically, Treasury securities have been considered the world’s premier “safe asset”—unquestionably creditworthy, infinitely liquid, and immune to the political dysfunction that periodically afflicts the US government. The Trump administration’s weaponisation of the dollar-based financial system, repeated threats of default, and aggressive unilateralism have eroded this confidence. The professors found evidence of a flight toward gold—an asset with no yield, no credit backing, and no utility beyond its symbolic status as the ultimate store of value. This is significant because the dollar’s dominance rests heavily on confidence in Treasury securities. If that confidence continues to erode, the foundation of dollar hegemony weakens. However, gold cannot serve as a payments currency; it lacks the infrastructure for high-velocity, low-cost digital transactions. The erosion of confidence in Treasuries creates an opening for alternatives like e-CNY and mBridge, but does not itself provide a replacement.
Q4: What is the “vehicle-currency status” of the dollar, and why is it both a source of strength and a potential vulnerability?
A4: The dollar’s vehicle-currency status refers to its role as the intermediary currency in foreign exchange transactions. Because the dollar is the most liquid currency globally, traders find it efficient to first convert funds from Currency A into dollars, and then from dollars into Currency B, rather than seeking a direct A-to-B exchange. About two-fifths of the dollar’s 89 per cent share in the $9.6 trillion daily foreign exchange market is attributable to this vehicle function. This is a source of strength because it is self-reinforcing: the more traders use the dollar as an intermediary, the more liquid it becomes, and the more attractive it is for future transactions. Network effects create a powerful barrier to entry for rival currencies. However, it is also a potential vulnerability because the vehicle-currency advantage is contingent on the absence of superior alternatives. A payments infrastructure that enables direct, real-time, low-cost settlement between any two currencies—bypassing the dollar entirely—would undermine the rationale for using the dollar as an intermediary. This is precisely what CBDC-based systems like mBridge are designed to achieve. Unlike previous challenges to dollar hegemony, which focused on creating rival reserve currencies or trade invoicing currencies, mBridge attacks the plumbing level of the financial system. It does not seek to replace the dollar as a store of value; it seeks to render it unnecessary as a medium of exchange.
Q5: What is India’s dilemma regarding participation in anti-dollar payment systems, and what factors constrain its strategic autonomy?
A5: India’s dilemma is a classic hedging problem in which competing strategic objectives pull in opposite directions. As a founding member of BRICS and a champion of multipolar global governance, New Delhi has rhetorically supported efforts to reduce dollar dependence and create alternatives to Western-dominated financial institutions. Its development of the digital rupee CBDC reflects both technological ambition and strategic hedging. It has reportedly explored proposals to link BRICS+ CBDCs through platforms like mBridge. However, India’s structural vulnerabilities constrain its ability to act on these preferences. Most significantly, its recent concessions to the Trump administration—including reported commitments to halt Russian oil imports—illustrate the effectiveness of US coercive diplomacy. The promise of tariff relief under the “tariff prison” framework has proven sufficient to extract major policy adjustments from a government that prides itself on strategic autonomy. If participation in mBridge-style initiatives that include Russia and Iran risks renewed US sanctions or exclusion from American markets, India’s enthusiasm may prove ephemeral. This is not a failure of Indian statecraft but a recognition of structural reality: the costs and risks of challenging dollar hegemony are distributed unevenly. Countries with significant trade exposure to the United States, limited geopolitical room for manoeuvre, or substantial dollar-denominated liabilities face higher switching costs than more insulated economies. India’s dilemma illustrates that de-dollarisation is not a single decision but a spectrum of partial, incremental adjustments, and that each country’s position on that spectrum is determined by its specific vulnerabilities and capabilities.
