Standard Chartered, PwC see potential for programmable CBDCs in China’s Greater Bay Area

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PricewaterhouseCoopers (PwC) China and multinational bank Standard Chartered have expressed optimism over the development of a central bank digital currency (CBDC) in China’s Greater Bay Area (GBA).

PwC and Standard Chartered presented their views in a recently released white paper, outlining the opportunities in the GBA and the future of programmable CBDCs. The GBA comprises over ten megapolises spanning the three distinct jurisdictions of Hong Kong, Macao, and Guangdong.

The white paper noted that the GBA is prime real estate to test CBDCs, given the diversity of currencies in the area. Hong Kong relies on the Hong Kong dollar, while Macao and China use the pataca and yuan, respectively, with over $500 billion worth of cross-border transactions completed each year.

“The successful launch of programmable use cases in the GBA could provide a foundational framework for how other CBDCs could interact in cross-border commercial scenarios,” the joint report read.

A large chunk of the white paper focused on the potential of programmable CBDCs, noting the extensive benefits to be gleaned in trade, supply chain, and loyalty program ecosystem. The report opined that less established retailers would be able to offer CBDC-based loyalty programs while payment service providers can leverage smart contracts to improve Know Your Customer (KYC) processes.

Both PwC and Standard Chartered propose that financing challenges SMEs face can be solved through programmable CBDC. Per the report, the CBDC can be programmed to fit payment conditions, thereby operating as a payment instrument or collateral using smart contracts.

The paper highlighted several precautions to be fulfilled before the full-scale application of programmable CBDCs, including proper smart contract design impervious to cybersecurity threats. Participating banking regulators must ensure adequate data management, interoperability between CBDCs and other payment systems, and cross-jurisdictional regulatory support.

CBDC development is thriving in the GBA

The development of CBDCs in the GBA has reached an advanced state led by the People’s Bank of China (CBDC) and the Hong Kong Monetary Authority (HKMA). China’s digital yuan has seen extensive pilots, spanning multiple provinces and scoring impressive metrics.

Meanwhile, the HKMA is inching toward developing its e-HKD with an intent to explore cross-border functionality with its neighbors. Both the PBoC and HKMA participated in the Bank for International Settlements’ mBridge CBDC pilot in 2022.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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