Last week the Chinese press reported that China Galaxy Securities had received approval from the China Securities Regulatory Commission (CSRC) to launch a pilot for a digital renminbi over the counter (OTC) wealth management product in collaboration with China’s biggest bank ICBC.
The companies previously partnered in a digital yuan sandbox project two years ago during the very early days of China’s central bank digital currency (CDBC) pilots.
“Currently, the company is actively participating in the new phase of capital market financial technology innovation pilots, continuing to enrich the application scenarios of digital renminbi, and gradually building a sound digital renminbi capital market application ecosystem as one of the key objectives,” said Wang Sheng, President of Galaxy Securities, as reported by the Shenzhen Securities Times.
ICBC operates a third party depository business in which it acts as cash custodian for securities company clients, segregating the cash custody from the operations of the securities firm.
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Conceivably with a digital yuan wallet, one could do away with this because it could be possible to have a separate sub wallet for cash held with the securities firm.
CBDC use case experiments
In 2021, Galaxy Securities experimented with three use cases when the sandbox trials were run. These included using the digital yuan for payment, for buying foreign financial products with ICBC acting as cash custodian and integrating the digital yuan with a digital wealth management wallet.
We believe only the first use case has been launched in the latest pilot.
The benefits were seen as the ability to settle transactions 24/7 and the use of smart contracts and the additional traceability. If a wealth product is redeemed, the cash is available one day earlier than usual.
“The use of digital renminbi in the payment and transaction business of securities companies’ customers can meet the requirements of safe, controllable and traceable capital flow in payment and transactions, and ensure the timeliness and security of payment and transaction orders as well as non-repudiation,” said Galaxy Securites VP Luo Liming.
The use cases for the digital yuan are gradually expanding with a recent report of small business loans granted with digital yuan.