Four foreign banks tap into digital yuan market

Four overseas lenders, including Standard Chartered and HSBC, have become the first batch of foreign banks to offer digital yuan services in mainland China.

The China branches of Standard Chartered, HSBC, Hang Seng Bank and Fubon Bank made separate announcements this week. Hang Seng is a Hong Kong bank owned by HSBC, while Fubon is the Hong Kong-based subsidiary of a Taiwanese firm.

Customers of the participating banks can now transfer money and make payments in digital yuan using the e-CNY app developed by the People’s Bank of China’s (PBoC) Digital Currency Research Institute. By linking their digital yuan wallets to a bank card or mobile banking account, bank clients can also top up their wallets with their bank deposits and exchange their e-CNY into bank deposits.

More than 40 Chinese state-owned banks have already been offering digital yuan services on the e-CNY app. The services are available to residents from more than two dozen cities and regions under the PBoC’s digital yuan pilot program.

Jerry Zhang, the CEO of Standard Chartered China, said the bank “is optimistic about the development prospects of e-CNY” in a statement on November 27. Standard Chartered expects a wider application of e-CNY in future, especially in international commercial and merchant finance.

Standard Chartered has previously taken part in several CBDC initiatives in China, such as the mBridge pilot. That ongoing initiative is led by the Bank for International Settlements and four central banks, including the PBoC, to develop a platform for wholesale cross border payments in multiple CBDCs. Standard Chartered also joined a pilot by the Hong Kong Monetary Authority to test using the central bank’s Faster Payment System to top up e-CNY wallets in 2022.

Song Yuesheng, chief executive of Hang Seng Bank’s China branch, said the bank plans to expanding retail use of the digital yuan. Fubon said it wants to expand use of the digital yuan in smart contracts, international payments and supply-chain finance.

Some other foreign banks are also developing their digital yuan businesses. In May, BNP Paribas’ China branch said it would partner with Bank of China, a state-owned Chinese lender, to launch a digital yuan wallet to support its corporate clients for both offline and online payments. The French-based lender had reportedly received a phone call in June from a US Republican politician’s aide inquiring about its work on the digital yuan, according to Bloomberg.

In July, DBS China started allowing their corporate clients to collect payments from their customers in e-CNY.

The PBoC began running digital yuan pilots in four cities in April 2020 and has expanded them to 26 cities and regions. It launched its digital yuan mobile app for the pilot cities in January 2022.

In July, former PBoC governor Yi Gang said China’s digital yuan transactions reached 1.8 trillion yuan ($250 billion) by the end of June that year. The amount of the CBDC in circulation reached 16.5 billion yuan by the same date, with 120 million wallets opened.

While Yi said digital yuan transactions had been growing rapidly, he added it made up only a tiny fraction of cash in circulation. At the time, e-CNY accounted for only 0.16% of cash in China.