The pandemic presented the need for an alternative, convenient, and safe payment system that will limit the use of cash which can further help spread the virus. And CBDCs can be a solution.
Goldman Sachs Group Inc (NYSE: GS) has published a report bordering on China’s Central Bank Digital Currency (CBDC) generally known as the Digital Currency Electronic Payment (DCEP) system. As reported by Coindesk, the Goldman Sachs report posits that the virtual currency from the most populous nation in the world will give commercial banks the competitive advantage to match up with fintech giants that have dominated the digital payment ecosystems.
China’s advances with respect to the development of the DCEP system has gained increased momentum this year, receiving an even bigger boost with the coming of the coronavirus pandemic. The pandemic presented the need for an alternative, convenient, and safe payment system that will limit the use of cash which can further help spread the virus.
Goldman Sachs in the report also highlighted some other advantages behind China’s relentless efforts to launch the DCEP. Some of these include eradicating the challenges posed by private digital currencies include Facebook’s (FB) Libra, removing the cost involved in using cash amongst others. The investment giant based on these believes China’s DCEP will take a significant place in the retail payments in the country in the coming years.
“In ten years we expect DCEP to reach 1 billion addressable users, 1.6 trillion rmb ($229 billion) in issuance, 19 trillion rmb ($2.7 trillion) in annual Total Payment Value (TPV) and account for 15% of total consumption payments,” the report said.
Goldman Sachs noted that the consumption offering in terms of digital payments through a mobile platform will be one of the ways in which commercial banks and fintech unicorns will compete for the most. And while China appears to be protective of commercial banks, the international reach of fintech companies may bolster their revenue doubling rate in the coming years in relation to those of the homegrown banks.
Goldman Sachs Other Tallies on the DCEP
Goldman Sachs noted that China will be among the first nations to launch a Central Bank-backed digital currency. As it stands, China has tested the DCEP which is in circulation in four cities including Chengdu, Suzhou, Xiong’an, and Shenzhen where about 50,000 of the residents in the latter city have received 200 RMB worth of digital yuan.
As the report detailed, China boasts of a total internet user of 900 million people which accounts for a total of 64% of the entire population. About 96% of China’s banking transactions are processed electronically. Goldman Sachs also projected that a 3 trillion rmb ($428.6 billion) in revenue pool will be raised in retail finance by 2025 (excluding mortgages) as growth in payments and retail lending slows but wealth management and insurance agencies remain brisk.
China is already making way for traditional financial institutions to breathe by halting Ant Group’s Initial Public Offering (IPO). Ant Group runs the Alipay digital payment platform and alongside Tencent Holdings Ltd (HKG: 0700) WeChat Pay had prior to this time controlled over 90% of China’s digital payment ecosystem.
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.