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China Galaxy Investment Management, which has 13 million brokerage clients, will launch a digital yuan pilot project for securities transactions in association with ICBC Bank, the world’s largest state-owned bank. The project was accepted in a Beijing sandbox.
The Chinese central bank’s digital currency (CBDC) or eCNY will be used for three types of transactions. The first is to pay fees for data, advice, and other services.
It will also be used to settle OTC share transactions in the “tripartite depot management system. “To explain what it is, in China the broker doesn’t handle cash. Instead, the broker opens an account with a bank and recommends their clients to do the same. Therefore, all money deposited by the client does not go directly to the broker but to his own account at the broker’s bank. When the client buys shares, the money is transferred from the client’s special account to the broker’s bank account. Thus, for the digital yuan test, digital currency will be used instead of using a bank account.
The whole point of the three-way depository system was to ensure that brokers cannot embezzle client funds by not allowing them to touch the cash.
If you consider a digital currency where a customer has control over it through a wallet, does they still need this tripartite system? Or does digital currency remove the need for trusted third parties?
We believe this is the rationale for the third sandbox app, where a client has a digital equity portfolio that can include a digital RMB balance to pay for the OTC stocks. It is not a question of abolishing the bank altogether, because the state banks are the intermediaries of the CBDC.
As with all digital yuan pilot projects, it will be limited to pilot regions. There are currently ten pilot venues as well as the Beijing Winter Olympics.
CBDC trials in China have intensified and reached 140 million wallets, or 10% of the Chinese population. One of the current areas of development is the fight against money laundering and fraudsters.
At the same time, in addition to the retail CBDC, China is also participating in a trial of wholesale CBDC or multiple CBDCs for cross-border payments, with Hong Kong, Thailand and the United Arab Emirates under the M-CBDC Bridge project. The six major Chinese state banks are participating.
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