A new platform to expand the reach of China's digital yuan and other central bank digital currencies is moving closer to reality, raising eyebrows among some defenders of a system long dominated by the dollar.

The Beijing-backed digital prototype for sending money around the world without relying on U.S. banks is advancing so quickly that some European and American observers now view it as an emerging challenger to dollar-denominated payments in global finance. The mBridge project, which is being developed by China, Thailand, Hong Kong, and the United Arab Emirates (UAE), will likely have a basic working product ready by year-end, four people familiar with the initiative said. It's a joint effort with the Basel, Switzerland-based Bank for International Settlements (BIS), a hub of global central-bank collaboration.