China’s Myanmar Project Could End U.S. Sanctions
Originally published in the Wall Street Journal
The digital currency would operate outside Swift but still have access to American banks.
A quiet financial experiment in Myanmar could upend the power of U.S. sanctions worldwide. Documents we’ve recently reviewed show China is helping Myanmar’s military junta build a digital payments system that can move money beyond Washington’s reach—an apparent test run for how Beijing’s financial technology can shield rogue regimes from U.S. pressure.
The project’s backbone is China’s digital yuan, or e-CNY. Beijing’s central bank issues this electronic money via authorized banks, and users access it via apps. Unlike private payment systems like PayPal or Alipay, a central-bank digital currency allows the issuer to see every transaction in real time and even decide how that money can be spent. In Myanmar the documents show that Chinese engineers are adapting this model to create an electronic kyat, Myanmar’s national currency, using infrastructure from Huawei and the Industrial and Commercial Bank of China, the world’s largest bank. (Huawei, ICBC and the Central Bank of Myanmar didn’t respond to requests for comment.)
On paper, it could look like a modernization project meant to reduce the costs of printing and storing currency. In practice, it’s a potential blueprint for sanctions evasion. Most international transfers move through Swift, the global messaging system monitored by the U.S. Treasury. When Washington imposes sanctions on a company, those payments stop. China’s alternative, the Cross-Border Interbank Payment System, or CIPS, bypasses Swift—and U.S. oversight—entirely. Myanmar’s junta already uses CIPS for some trade with China, but the country’s chaotic cash-based economy makes systemic evasion difficult at scale. It’s too difficult to move as much cash as large-scale sanctions evasion would necessitate.
A digital kyat removes that bottleneck by creating a seamless payment infrastructure. In Myanmar’s digital kyat pilot program, which the government announced in general terms in June, the Central Bank of Myanmar would issue digital kyat via authorized banks. Any of these that trade with China would go to ICBC, which would convert digital kyat into digital yuan, and transactions would route through CIPS instead of dollar channels. The system could let entities subject to sanctions move funds without touching Swift. More important, the layered structure—Myanmar’s central bank to people and business to ICBC to CIPS—would obscure who controls the money. ICBC has correspondent relationships with nearly all of America’s largest banks, potentially opening a backdoor into the U.S. financial system. Military companies under sanction could get access to dollar clearing via shell companies or Chinese intermediaries, making ownership nearly impossible to trace. Each conversion point adds another layer of anonymity.
Washington should treat this as a direct challenge to the international financial system. Just because Beijing is beginning in Myanmar doesn’t mean it’ll stop there. Expanding this sort of digital currency system to other regimes could allow China to chip away at U.S. financial dominance by creating a parallel system immune to Western sanctions. Commercially, the ICBC could earn fees—the documents show it will in the case of Myanmar—and become the banker for regimes or entities locked out of Western finance. The two goals reinforce each other: China weakens U.S. leverage while profiting from isolation.
Myanmar is an ideal testing ground. It’s a cash-starved state blacklisted by the Group of Seven’s Financial Action Task Force and awash in narcotics and money from online fraud. For Beijing, Myanmar is low-profile enough to experiment on—compared with fellow FATF blacklisted states North Korea and Iran—yet strategically vital for China’s access to the Indian Ocean. For Myanmar’s junta, it’s a lifeline to move money when the dollar doors are closed.
The Treasury Department should warn U.S. banks to sever correspondent relationships with ICBC and other institutions facilitating CIPS-based payments. ICBC’s correspondent ties with major American banks provide dollar access—creating a potential backdoor to evade sanctions and reach U.S. markets through Chinese intermediaries. Washington shouldn’t allow ICBC to maintain privileged access to American finance while building infrastructure to evade American sanctions.
This digital kyat system is a losing proposition for the people of Myanmar, particularly the pro-democracy movement. By embedding Chinese technology in Myanmar’s payment system, Beijing gains visibility into every transaction—and leverage over the entire country. In exchange for short-term survival, Myanmar’s junta is trading away monetary sovereignty to an unpopular foreign power. If the system works, China’s control may prove irreversible even if democracy returns to Myanmar. If it fails, Myanmar faces economic ruin reminiscent of 1987, when dictator Ne Win voided all bank notes in denominations not divisible by his lucky number 9, wiping out citizens’ savings overnight. People were left with little money even for food.
China’s digital-currency pilot in Myanmar is far from a local story. Beijing is laying the first pipe for financial plumbing in a post-American world—where U.S. sanctions no longer matter. If Washington doesn’t act, expect China’s construction project to extend to every hostile regime around the world.
