(Bloomberg) --
China's digital yuan will help banks become more competitive in the payments sector after steadily losing out to popular technology platforms over the years, according to Moody's Investors Service.
“We expect adoption of e-CNY to help reinforce banks' position in the payments system because it will enhance their data collection ability and broaden their user bases,” analysts led by Zedric Cheung said in a report Thursday.
China is already a largely cashless society, thanks to huge popularity of digital payment tools operated by Tencent Holdings Ltd. and Ant Group Co. Ltd. Their dominance has led to spillover effects on banks, such as more customers moving bank deposits to money market funds run by the tech firms, according to the report.
The e-CNY -- developed by the central bank and now under trial in a dozen cities -- adopts a two-tier structure, where the central bank issues the digital currency to authorized commercial banks, which then exchanges and circulates it to the public. China Merchants Bank Co. Ltd. was the latest to become an official distributor, on top of six state-owned banks and virtual banks backed by Ant and Tencent, officials at the People's Bank of China said last month.
The effort to develop a digital yuan “reflects the authorities' concerns about data concentration among technology companies”, the Moody's analysts said. PBOC officials have previously said the e-CNY offers better protection of privacy and the capability to combat crimes.
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With assistance from Bloomberg
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