China looks poised to claim ‘first mover advantage’ on digital currency: HSBC

July 10, 2020.

said Thursday that a digital version of the Chinese yuan, which it suspects will launch soon, could improve China’s payment systems and put the nation at the forefront of digital currency development.

A central bank digital currency — an all-digital equivalent of legal tender issued and regulated by the state — may make buying and selling in China quicker and safer, Paul Mackel, head of emerging-markets foreign-exchange research at HSBC, said in a report. He foresees that the still-unreleased technology will also transform cross-border payments to be more efficient and useful.

“A centrally issued digital currency would provide a reliable alternative to privately developed e-payment systems, including cryptocurrencies developed abroad,” he said.

Mackel said that the adoption of a digital currency could also inform monetary policy, by giving policymakers more data on how money is spent, and reduce the use of cash, which is “the easiest method for people to engage in prohibited activities anonymously,” he said.

HSBC’s report came a day after China’s largest digital currency trial yet was announced by Chinese ride-hailing company Didi, which said it will work with the country’s central bank to give its 500 million users access to the “e-RMB.”

Although the central bank has given no timetable for launching digital currency, HSBC said it believes a full digital currency launch “might be close,” based on speeches and interviews given by the leader of China’s , Mu Changchun.

Such a launch would create the world’s first official central bank digital currency, although dozens of other countries are also working on digital money alternatives following the proliferation of cryptocurrencies. Leading the pack could give China a “first-mover advantage,” Mackel said.

“This is another incentive to develop at speed,” he said. “We think the next moves on central bank innovations such as the e-RMB are well worth watching.”