China’s digital currency injects life into IT, bank stocks as Deutsche Bank sees possible pain for cryptocurrencies

Banks, infotech service providers to benefit as China expands its experiment with Digital Currency Electronic Payment

CBDCs and the revolution in money transfer systems may come at the expense of some private-sector cryptocurrencies, Deutsche Bank says

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A sign indicating digital yuan, also referred to as e-renminbi, is pictured on a vending machine at a subway station in Shanghai on April 21. Photo: Reuters

Published: 7:30am, 3 May 2021Updated: 7:51am, 3 May 2021

China’s experiment with a digital currency, a move Deutsche Bank said could usurp some cryptocurrencies over time, is giving life to one small corner of the nation’s sluggish stock market: information technology service providers.

A gauge tracking 52 digital currency-related stocks surged as much as 9 per cent in April to the highest since December, according to Eastmoney.com. Pacing the rally was Chutian Dragon, a security smart-card producer whose stock surged 144 per cent. Global Infotech, which provides application and software systems for banks, jumped 22 per cent.

The spark contrasted with broader market inertia, where the CSI 300 Index and the Hang Seng Index have drifted sideways over the past two months, while bitcoin and ether tumbled and rallied. Money managers at Invesco and UBS expect big banks to profit as the revolution in money transfer systems gathers speed.

“Banks should be the key beneficiaries of the digital yuan because digital yuan has zero fees, which is more competitive than existing electronic payment platforms,” said Chris Liu, a Hong Kong-based fund manager at Invesco. “Banks could grab market share from there.”

Financial institutions are likely to target both e-wallets and merchant acquisition services which are currently dominated by third-party payment companies, benefiting IT service providers as new investments in e-wallets and other applications increase, Liu added.

China is leading major economies in developing a central bank digital currency, also known as the Digital Currency Electronic Payment or DCEP, after expanding its trial last month into more regions. Six of the nation’s biggest lenders handled a pilot promotion in December.

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