Impact of Digital Yuan (e-CNY) Promotion on Traditional Banking: Challenges and Response Strategies

Abstract

The introduction of China’s digital yuan (e-CNY) marks a significant transformation in the country’s financial sector, impacting traditional banking, financial institutions, and consumer behavior. As a central bank digital currency (CBDC), e-CNY is designed to enhance financial inclusivity, increase monetary control, and reduce reliance on third-party payment providers. However, its widespread adoption presents challenges and opportunities for traditional banks, requiring them to rethink their business models, adapt to digital currency dominance, and develop new financial strategies to maintain competitiveness. This paper explores the regulatory framework, technological challenges, and financial sector implications of e-CNY, focusing on its effects on traditional banking business models, deposit structures, and loan issuance mechanisms. The study also examines consumer behavior, market adoption patterns, and the competitive landscape, highlighting the role of fintech firms and digital payment platforms. The discussion extends to financial inclusion, particularly in rural and underbanked regions, assessing the potential of e-CNY in bridging economic disparities. The research further investigates response strategies for commercial banks, including hybrid financial models, fintech collaborations, and AI-driven banking solutions. It also provides policy recommendations to ensure stability in the banking sector amidst digital transformation, including monetary policy adjustments, cross-border e-CNY integration, and cybersecurity measures. Findings suggest that while e-CNY presents short-term disruptions to commercial banks, it also offers long-term opportunities for financial innovation and international trade expansion. The paper concludes that traditional banks must embrace technological advancements, regulatory collaboration, and service innovation to maintain relevance in China’s evolving digital economy.