France's BNP Paribas to Be First Foreign-Owned Bank to Support Digital Yuan

BNP Paribas HQ in Paris (Boubloub)

The Lede: BNP Paribas will partner with the Bank of China (BOC) to allow their corporate customers to transact in digital yuan

What We Know:

The partnership connects BNP Paribas China with BOC to launch a digital yuan (e-CNY) management system for its corporate clients that links e-CNY wallets to their BNP Paribas bank accounts to facilitate “efficient, real-time and convenient” digital yuan usage.
BNP Paribas is the first foreign-owned bank to take part in China’s digital yuan rollout. Ten other domestic banks have been authorized to handle the digital yuan. BNP Paribas intends to explore opportunities in expanding the use of the digital yuan to smart contracts, utility payments, supply chain finance, and cross-border payments.

The Background: China started exploring a sovereign digital currency in 2014. In addition to linking finances directly to the Chinese Central Bank, the digital yuan aimed to allow unbanked people, such as those traveling from overseas, to participate in digital finance in China. The digital yuan has been rolled out in 26 cities and regions in China with many promotional incentives, but most of the population continues to use existing mobile payment services such as Alipay and WeChat Pay. In 2021, HSBC subsidiary Hang Seng Bank’s mainland branch partnered with China Construction Bank to offer services to its corporate clients.

Likely Outcomes:

While the digital yuan is still mostly concentrated in domestic transactions, this may be another step in the internationalization of the digital yuan. This follows a 40-daytrial in 2022, where China, Hong Kong, Thailand, and the United Arab Emirates completed 160 cross-border payments and foreign exchange transactions through 20 commercial banks totaling $22 million with digital currencies. With the rising use of Chinese currency in global transactions and international trade agreements, the added convenience, institutionalization, and network potential, the e-CNY could quickly gain adoption.
Increased economic and trade ties across the many countries associated with China’s Belt and Road Initiative could facilitate the e-CNY as a means of payment for debt and allow China to more easily extend credit. It would also mean that the oversight capabilities that the Chinese government can exercise over domestic transactions would cross into foreign transactions.
Countries that face Western sanctions may find the digital yuan to be an attractive alternative to the established global monetary system dominated by the U.S. dollar. The formation of a digital yuan infrastructure that can operate outside of this system may grow significantly, especially if it can continue to interface with Western institutions.

Quotables:

“The collaboration has once again demonstrated our commitment to the China market, and we will continue to enhance our customer service capabilities through digital innovation and contribute to China’s economic development.” – CG Lai, CEO of BNP Paribas China

“[This is] an important milestone for the Chinese yuan. The involvement of foreign banks in the digital yuan wallet space can open up the situation for the internationalization of the yuan. It can provide more tools for foreign financial users. It could facilitate cross-border payments between China and other countries.” – Sun Yang, senior financial technology researcher at Jiangsu Suning Bank

Good Reads:

BNP Paribas Teams Up with Bank of China to Promote Digital Yuan Usage (MSN)

China digital currency: BNP Paribas to promote digital yuan usage in China (SCMP)

BNP Paribas partners with Bank of China to boost digital yuan for business (Kitco)

Banking Giant BNP Paribas to Launch China CBDC Wallet Platform – A Boost for the Digital Yuan? (Cryptonews)

Will China’s Digital Currency Be the Next Big Global Financial Technology? (Medium)