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, said Moody’s recently.
“Widespread adoption of the digital renminbi 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," said Lillian Li, a Moody's Vice President and Senior Credit Officer.
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, Li noted.
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, Moody’s predicted.
China will likely continue exploring opportunities for the adoption of the e-CNY in regional cross-border payments, according to the credit rating agency.
Still, it is a system designed for small-value domestic payments and this feature will limit its ability to challenge the US dollar's role in the international payments system or foster the internationalisation of the renminbi in the near term, Moody’s said.
