Four foreign-funded banks including Standard Chartered and HSBC have jumped on China’s central bank digital currency (CBDC) bandwagon, as financial institutions and regulators push to expand the use of the digital currency in domestic and cross-border payments.
The China branches of HSBC, Standard Chartered, Hang Seng Bank and Fubon Bank became the first overseas banks to participate in China’s CBDC pilot, the banks announced separately this week.
They join more than 40 state-owned banks in launching their services on the e-CNY app, developed by the People’s Bank of China (PBOC)’s Digital Currency Research Institute, a research team within the Chinese central bank dedicated to launching the sovereign digital currency, also known as the e-CNY.
Clients of the participating banks will be able to send and receive money using the e-CNY app, make payments both online and offline, and top up digital wallets by connecting them with an existing bank card or mobile banking account.
“As an important infrastructure for the digital economy, the e-CNY will enhance the payment and consumption experience and strengthen the connection between China and the international financial market,” said Jerry Zhang, executive vice-chairman and CEO at Standard Chartered China.
The e-CNY will see wider application in the future in areas such as merchant payments, trade finance and supply chain finance, Zhang said, adding that Standard Chartered will provide its services to retail and corporate customers with the goal of injecting “new momentum into the development of the real economy”.
Hang Seng Bank (China)’s CEO Song Yuesheng said the bank is committed to accelerating the application of the e-CNY in retail scenarios, with the goal of supporting retail service providers and stimulating consumption.
“Compared to large Chinese banks, foreign banks typically have less diversified product lines in China,” said Li Ying, head of financial institution ratings at S&P Global (China) Ratings. “In terms of sophistication of digital banking in China, domestic banks are also ahead of foreign ones.”
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Foreign banks have been making efforts to catch up though, she said. “E-CNY is the new frontier of financial innovation in China. By actively participating in the pilot programme, foreign banks have a better chance to increase their relevance in China’s future banking business.”
The move to support the digital currency shows the banks’ commitment to the Chinese market and could set the stage for more foreign-funded banks to follow, Li added.
In addition to keeping up with China’s domestic banks, foreign-funded banks have been eyeing opportunities related to the e-HKD, Hong Kong’s local digital currency.
Since May this year, HSBC and Standard Chartered have been taking part in a trial run of the e-HKD spearheaded by the Hong Kong Monetary Authority, the city’s de facto central bank.
The programme aims to explore the digital currency’s potential use in six areas, including offline payments and tokenised deposits. A total of 16 banks and payment companies, including Alipay and Visa, are taking part.
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Aside from promoting the use of the e-CNY and e-HKD in domestic payments, central bankers are also calling for stronger collaboration to promote the use of digital currencies in cross-border payments.
During the 2023 Shenzhen International Fintech Festival this week, Mu Changchun, the director of PBOC’s Digital Currency Research Institute, said a multilateral “bridge” directly connecting the central banks of different countries could significantly enhance the efficiency of cross-border transactions and reduce costs, compared with existing cross-border payment systems, which involve one or multiple correspondent banks.
The central banker also said CBDCs should promote the healthy development and stability of the global financial system.