Digital Currency: Reinventing the Yuan for the Digital Age

China is at the forefront of digital currency development and will likely be one of the first countries to issue a sovereign digital currency (known as “DC/EP”). As a gradual replacement for physical cash, in the early stages DC/EP will facilitate small payments for consumables such as meals, groceries and transport, but over time will expand to larger and more complex, value-added services such as government subsidies and cross-border payments. Even in a cashless environment, DC/EP will be an attractive alternative to fintech platforms given its anonymity, the ability to operate outside of wireless networks, and interconnectivity among different payment methods. Successful adoption will ultimately require government promotion, which has the wherewithal to drive a rapid uptake. In ten years we expect DC/EP to reach 1 billion addressable users, Rmb1.6tn in issuance, Rmb19tn in annual Total Payment Value and account for 15% of total consumption payments. Incorporating digital currency wallets into bank apps will level the playing field in the Rmb 3tn revenue pool for retail finance by bringing consumers back to bank channels, thereby expanding their customer base and MAUs. This will likely slow the rate that banks have been ceding ground to fintech, and even reverse market share losses over the long-term if DC/EP gains in popularity. In the meantime, PAB and CMB will benefit most from DC/EP as they are best placed to commercialize returning app users thanks to their leading retail franchises, premium client bases, superior fintech capability and strategic focus on retail finance.