China’s Digital Yuan Emerges as a Geopolitical Tool in Financial Warfare

China is leveraging cryptocurrency and central bank digital currencies (CBDCs) as instruments of statecraft, according to a recent study. The digital yuan, alongside blockchain networks, is being positioned as a strategic asset in hybrid warfare, capable of redirecting liquidity during financial crises or sanctions. This shift underscores the growing intersection of economic survival and national security.

The study highlights a triad of conflict—total war, hybrid war, and digital financial war—where digital ledgers serve as the backbone of national resilience. By digitizing money flows, Beijing aims to sustain liquidity, fund defense industries, and bolster domestic demand amid global financial fragmentation. The digital yuan, designed to operate independently of U.S. sanctions and the SWIFT network, is at the forefront of this strategy.

Geopolitical tensions are accelerating the decline of the dollar's dominance. Economist Barry Eichengreen notes its share of global reserves has dropped from 71% in 2000 to 58% in 2024. Governments are increasingly distancing themselves from the dollar for geopolitical reasons, even as private firms continue to rely on its liquidity.