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Digital Disruption

China and the race for the future of money

How digital currency could change the global financial landscape.

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Pingyao, in Shanxi province, was once the financial centre of Imperial China—the birthplace of banks that led the world in remittances and settlements using “tickets” that were a sort of tokenised legal tender. The People’s Bank of China honoured Pingyao, now a UNESCO World Heritage Site, in 2019, with a set of silver and gold commemorative coins. Even as it honours the past, though, China is focused squarely on the financial future. In 2020, the country began testing a digital renminbi (RMB), which could have revolutionary implications for the future of money. Although a virtual RMB probably hasn’t blipped on many CEO radar screens, particularly given the disruptive effects of the pandemic, it’s time to start tracking how the financial environment could shift.  

China started with several urban pilots of the digital RMB—known formally as digital currency electronic payments (DCEP)—and is studying moves to broaden the trial to additional areas. DCEP is a fully digital version of the RMB, downloaded using authorised apps (digital wallets). The currency may incorporate secure technologies such as blockchain, as well as near-field communication (NFC) capabilities that allow offline money transfers when two wallets (typically mobile devices) touch.

Although China is among the leaders, monetary authorities worldwide are piloting digital currencies.

A small selection of digital currency initiatives around the world, Nov. 2017 to Feb. 2021

Completed pilots
Ongoing pilots
Official launch
Nov. 2017
Uruguay: Limited mobile-based pilot
Feb. 2018
Ukraine: Multi-phased pilot
Mar. 2019
Eastern Caribbean Central
Bank (ECCB):
Phase 1
ECCB: Phase 2 delayed by COVID-191 (July 2020)
Feb. 2020
Sweden: 12-month pilot with option to extend
Mar. 2020
South Korea: 22-month pilot
Apr. 2020
China: Five pilots launched;
additional locations under consideration
Jul. 2020
Thailand: Cross-border pilot
Oct. 2020
The Bahamas: First country to roll out a CBDC2
Feb. 2021

Since 2009, when bitcoin arrived, a variety of cryptocurrencies has arisen, launched first by start-ups (like Ethereum), but more recently by established players such as Facebook, whose Diem partnership looks to create a new global digital ecosystem. The People’s Bank of China is likely to be a pioneer in the launch of a digital fiat currency, potentially ushering in a new era in the digital economy. (For more on China’s efforts, see The business implications of China’s digital RMB.)

For CEOs and their top teams worldwide, the rapid changes in the virtual currency landscape should prompt questions about their readiness to operate and seize opportunities in the new environment. For example: 

  • Have we thought through the implications for supply chains when more transactions in some regions are denominated in digital currency? 

  • What are the implications for our financing and currency operations as adoption grows and a new digital currency infrastructure develops? 

  • How could we better serve our customers by reducing friction in digital currency transactions? 

  • How up-to-speed are we on the new regulatory frameworks that monetary, securities and tax authorities are beginning to build out? 

If you’re not wrestling with questions like these now, it’s time to start. 

Digital dynamism

China’s boldness isn’t surprising given its position as a nearly cashless society, and its evolution as a digital society. In 2000, China had about 23 million internet users; today, that number has swelled to more than 900 million, substantially all of whom use the technology solely with a mobile phone. Impetus for that progress was the size and spread of its population along with the high costs of building a comparable “physical” communications infrastructure. 

One consequence was the emergence of China’s hugely successful e-commerce and online-to-offline platforms. From these platforms, two pioneering digital payments systems coalesced—Alipay and Tenpay, with its WeChat Pay service—allowing nearly friction-free shopping and a proliferation of uses, including such everyday transactions as accessing public transportation. 

There are a number of other potent, parallel trends that will continue driving the demand for digital payments and, by extension, digital currencies. Businesses worldwide continue to digitise, and the post-COVID world will result in even more commerce processed on social platforms. We see this in the KPI data reported by US and Chinese platform companies. Whereas previously the focus was on monthly active users, the attention now is increasingly on daily commercial transactions. This intensifying move to conduct commerce on the platforms is driving demand for digital payments, which has led to growth in the number of digital payment companies. The digitisation of commercial transactions and payments also creates opportunities for digital currencies, given their potential to speed up transactions; enable lower-cost, more streamlined monetary pathways; and log transaction information instantaneously. 

Gaining momentum

Market momentum has prompted monetary authorities worldwide to begin exploring digital currencies, which are now being studied or piloted by more than 85% of central banks.1 In October 2020, the Bank for International Settlements (BIS) released a report in collaboration with seven large central banks—among them, the European Central Bank, the Bank of England, the US Federal Reserve and the Bank of Japan—assessing the feasibility of central bank digital currencies (CBDCs). The report focused on principles for how digital currencies would coexist with cash and other types of payments, what would be required so adoption would do no harm to financial stability, and which features would increase financial innovation and efficiency. Some smaller nations, such as Sweden and Thailand, are staging their own digital currency trials, and the Bahamas recently launched the first national CBDC.  

Continued progress in China could accelerate these efforts. During 2020, there were several million DCEP transactions, totalling hundreds of millions of dollars; and by one estimate, the digital RMB could account for 15% of all Chinese electronic payments in ten years. China’s tests ran across thousands of businesses and also engaged consumers directly—through, for example, a lottery-based distribution in January 2021 of 100,000 digital currency “red envelopes,” each worth 200 RMB, for holiday gifts.

And the business case for deploying digital currency is strengthening. Facebook’s Diem reflects the aspirations of platform players. Elsewhere, opportunities for trading virtual currencies (largely cryptocurrencies) are growing with backing from financial institutions, and investors are becoming more at ease with portfolio holdings in cryptocurrencies. 

As the world becomes more digital and commercial transactions shift even more forcefully to digital platforms, the potential for DCEPs will increase. Today, Chinese currency accounts for about 4% of global transactions. DCEP could further lubricate domestic and, over time, global commerce for Chinese companies. It could also provide safeguards against fraudulent transactions. Broad uptake could raise the RMB’s profile in world money markets against the dollar and the euro. 

Looking ahead: The evolving landscape

Momentum for virtual currencies is building across different arenas—crypto and private digital currencies, as well as DCEP. Here’s a quick executive scan of what’s developing in the cryptocurrency sphere and China: 

Regulation is one factor stoking expansion of the cryptocurrency environment. Monetary authorities and regulators are continuing to provide clarity in this area. Hong Kong, for example, is exploring a framework for cryptocurrency exchanges. In the US, the Office of the Comptroller of the Currency has given the green light to federally chartered banks and thrifts for verified transactions in digital “stablecoins.” As financial centres and large economies move forward with rules for digital assets, it opens pathways for industry growth and innovation,2 while providing comfort to traditional financial institutions contemplating ways to enter the arena. 

Banks and other financial institutions are likely to be on the front lines of change. Adapting to cryptocurrencies will require rewiring systems, along with funding upfront operational and compliance costs. Some banks are accounting for that by creating revenue-producing units around virtual money operations. Seizing the regulatory momentum, they are both building crypto trading platforms and launching asset management offerings, custodial operations, and currency advisory and research groups. As our colleagues have noted, greater integration between the software and apps powering fintech offerings and mainstream banking operations will be necessary. Virtual currencies laden with transaction information will open up opportunities for an array of innovative financial offerings—as well as increasing investor demands for them. 

Transactions in virtual currencies are poised to rise sharply. The best digital transactions are intuitive, needing only a finger swipe or mobile phone tap. Successful payments players in China, where mobile payments far outstrip those in other countries, have been active participants in these dynamics. As the use of virtual currencies grows, and China’s DCEP effort progresses, pressures will intensify on companies—financial and non-financial alike—to offer more digital payment options and better experiences to their customers. To that end, Facebook’s Diem aims to make sending money around the world as easy as sending a text message, while also helping to reduce transfer and remittance fees, which often are costly. 

Advances in the B2C sphere will set the stage in company-to-company transactions in-country and across borders. China’s banking system likely will be a first mover in providing capabilities for widespread B2B payments. Merchant-to-merchant transactions may already be trending: the data suggest growth in digital B2B commerce between Latin American buyers and exporters from Asia. The added security, lower cost, ease of tracking payments, and commercial partnerships enabled by digital currencies will increase the attraction for global companies looking to improve supply chain performance. 

Leaders need to become more comfortable on the new terrain. Now is the time to start laying the groundwork for how companies move into the digital currency era. Some company treasurers are already making early moves in response to changing dynamics. Firms ranging from tech players like MicroStrategy to insurer MassMutual are increasing their holdings of crypto currencies—seeing the potential for rising portfolio value, for a hedge against inflation or for cryptocurrency options to support consumer purchases. The trading infrastructure is maturing quickly, prompted by regulatory actions. Exchanges for futures trading and derivatives of cryptocurrencies are multiplying, with hedge funds supplying additional liquidity. Innovative investment vehicles in cryptocurrencies and new financing strategies could, over time, arise from these developments. Meantime, M&A activity among crypto players is accelerating. As privately organised digital money offerings and existing cryptocurrencies (and their ecosystems) gain ground, players are recruiting talent with deep financial services knowledge. Increased surveillance and understanding of cryptocurrencies by regulators and tax authorities, ultimately, will make for a more certain market space.  

Finally, it seems extremely likely that the China operations of many companies will soon be operating in an environment where larger numbers of transactions will be denominated in the new digital currency—and competing with Chinese companies embracing such transactions. Leaders should keep a close watch on how Chinese pilots evolve, on changes in China’s regulatory regime and on the pace of company adoption. Over time, the web of individual transactions via DCEP could evolve greater B2B usage with broader operating implications. 

There’s a long way to go, but the direction of travel seems clear. 2021 will be the year when China is a test lab for the mass adoption of digital money. Then, 2022 could mark the global unveiling of its progress, at the Winter Olympics in Beijing, where, according to reports, global athletes and event attendees will be using the digital RMB. As Olympians go for the gold, the potential of a much bigger global economic prize may, for the first time, be on full display.

Read more articles by Wilson Chow and Vicki Huff Eckert on strategy+business.


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Wilson Chow

Wilson Chow

Global Technology, Media and Telecommunications Leader, Partner, PwC China

Tel: +86 755 8261 8886

Vicki Huff Eckert

Vicki Huff Eckert

Vice Chair, PwC United States and Ventures and Innovation, Global Leader

Tel: +1 408 817 4136