China’s planned new central bank digital currency (CBDC), the digital renminbi or e-CNY, could shake up the country's e-payments industry if adopted widely by changing the competitive landscape in the e-payment industry, according to a new report.
“Widespread adoption of the e-CNY would help strengthen banks' roles in the e-payment system by increasing their data collection and user bases, and would allow them to benefit from use of public infrastructure for payment,” says Lillian Li, vice-president and senior credit officer at Moody’s Investors Service, which published the report.
A potential downside could be increased bank funding risk due to the ease of transfers between bank users’ e-CNY wallets and bank accounts, although design features of the e-CNY are intended to mitigate this risk, the report states.
The impact on technology firms in the digital payments and e-finance services industries would likely be limited in the short term, but competition will mount over the longer term with wider CBDC adoption and the heightened role of banks in e-payments.
China will likely continue exploring opportunities for the adoption of the e-CNY in regional cross-border payments. Still, it is a system designed for small-value domestic payments. This feature will limit its ability to challenge the US dollar’s role in the international payments system or foster the internationalization of the renminbi in the near term.