The cryptocurrency-themed stock rally shows no signs of slowing down. On October 24, digital currency-related equities continued their strong momentum from the previous session. By market close, shares of Zhidu Shares, SJKC (Sifang Jingchuang), and Hanye Shares surged to the daily trading limit, while Hengbao, Huijin, and Digital Authentication saw significant gains.
This rally follows high-level financial dialogue between China and the UK. Recently, Yi Gang, Governor of the People's Bank of China (PBOC), met with Mark Carney, former Governor of the Bank of England. The two discussed global economic trends, Brexit implications, enhanced financial cooperation between China and the UK, and the development of central bank digital currencies (CBDCs). This international engagement underscores growing global interest in digital currency frameworks and reinforces confidence in the sector’s long-term trajectory.
Understanding China’s Central Bank Digital Currency (CBDC) Strategy
According to insights from CITIC Securities, the PBOC’s digital currency is designed as a direct replacement for physical cash—specifically targeting M0 money supply. In essence, it represents a digitized upgrade of traditional fiat currency, offering enhanced traceability, efficiency, and financial inclusion.
Experts speculate that China's CBDC will operate under a two-tier distribution model:
- Top tier: The central bank issues digital currency to authorized financial institutions via a distributed ledger system.
- Bottom tier: These institutions then circulate the digital yuan through existing banking and payment infrastructures.
This hybrid architecture ensures scalability while maintaining control and regulatory oversight.
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How CBDC Reshapes Financial Institutions and Payment Ecosystems
The introduction of a central bank-backed digital currency is set to redefine roles across the financial landscape.
Banks: From Custodians to Digital Wallet Innovators
Traditional banks are poised to expand beyond deposit-taking and lending by integrating digital wallets into their service offerings. With native support for CBDC transactions, banks can accelerate their entry into mobile payments and real-time transaction ecosystems—historically dominated by third-party platforms like Alipay and WeChat Pay.
Third-Party Payment Providers: A Market in Transition
The digital yuan introduces both challenges and opportunities for non-bank payment firms. While dominant players may face margin pressure due to reduced interchange fees, licensed distributors and technology partners stand to benefit significantly. Companies involved in wallet provisioning, transaction processing, or multi-channel integration could see increased demand for their services.
Payment Clearing Infrastructure: Rising Competition
As CBDC adoption grows, clearinghouses and interbank networks will face intensified competition—not only from traditional peers but also from fintech disruptors leveraging blockchain and smart contract technologies. This shift drives innovation but also demands higher operational resilience and cybersecurity readiness.
Three Core Investment Themes in the Digital Currency Ecosystem
Anxious Securities (Anxin Securities) highlights that the rollout of China’s digital currency will bring transformative changes to financial markets—unlocking new revenue streams and business models. Investors should focus on three strategic investment themes:
1. Issuance Layer – Banking IT Infrastructure Providers
At the core of CBDC deployment is the need for robust backend systems capable of handling issuance, reconciliation, and compliance tracking. Financial institutions require upgraded core banking software, data management tools, and secure APIs to interface with the central bank’s digital ledger.
Key areas of opportunity include:
- Core banking system modernization
- Distributed ledger integration
- Real-time transaction monitoring
- Regulatory reporting automation
Promising players in this space include ChangLiang Technology, Hundsun Electronics, Sifang Jingchuang, Kelan Software, Advanced Data Tech, Yuxin Technology, Runhe Software, and Gaowei Data.
2. Circulation Layer – Wallet & Payment Service Providers
Once issued, digital yuan must be stored, transferred, and spent—creating demand for user-facing solutions. Digital wallets—whether hosted by banks, telecom operators, or fintech firms—will serve as primary access points for consumers and merchants alike.
Additionally, point-of-sale (POS) hardware manufacturers and payment gateways must adapt to support CBDC transactions seamlessly.
Companies well-positioned in this segment include:
- Lakala – Leading third-party payment processor
- New Land – Major provider of POS terminals and merchant services
- New Guodu – Developer of smart payment devices
- HaiLian JinHui – Integrated payment solutions provider
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3. Management Layer – Security, Encryption & Identity Verification
With increased digitization comes heightened risk. Ensuring the integrity, confidentiality, and authenticity of digital currency transactions requires advanced security protocols.
Critical components include:
- End-to-end encryption
- Hardware security modules (HSMs)
- Biometric authentication
- Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance systems
Leading cybersecurity and identity management firms such as Westone, 360 Security, and Feitian Technologies are expected to play pivotal roles in safeguarding the digital yuan ecosystem.
Frequently Asked Questions (FAQ)
Q: What is a central bank digital currency (CBDC)?
A: A CBDC is a digital form of a country’s official currency issued and backed by its central bank. Unlike cryptocurrencies like Bitcoin, CBDCs are centralized, regulated, and designed to coexist with physical cash.
Q: How does the digital yuan differ from mobile payments like Alipay?
A: While Alipay is a private payment platform that moves existing bank deposits, the digital yuan is legal tender issued directly by the PBOC. It enables peer-to-peer transfers without intermediaries and works offline—offering greater monetary control and financial inclusion.
Q: Will CBDC replace traditional banking?
A: No. Instead, it enhances the current system by modernizing infrastructure. Banks remain essential for credit creation, savings, and financial services—but must adapt to new technological standards.
Q: Are cryptocurrency stocks safe investments?
A: Like any sector-linked equity, these stocks carry market risks. However, companies tied to national digital currency initiatives benefit from policy tailwinds and long-term structural growth potential.
Q: Can individuals invest directly in the digital yuan?
A: Not directly. The digital yuan itself isn’t an investment asset. But investors can gain exposure through stocks of firms involved in its development, distribution, and security.
Q: Is the digital yuan already in use?
A: Yes. Pilot programs have been running in multiple Chinese cities since 2020, including Beijing, Shenzhen, and Shanghai. Expansion continues with broader retail and cross-border use cases under exploration.
Final Thoughts: Positioning for the Future of Money
The rise of cryptocurrency-themed equities reflects more than short-term speculation—it signals a structural shift toward a digitized financial future. As governments worldwide explore or launch CBDCs, early-mover markets like China offer valuable insights into how technology, regulation, and capital converge.
For investors, focusing on fundamental enablers—IT infrastructure, secure transaction platforms, and identity verification systems—provides a resilient strategy amid evolving market dynamics.
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