China-Myanmar Project: Will Sanctions Lift?

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 Chinathe 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.