China’s Blockchain Service Network Begins Work on Interlinking Stablecoins and Central Bank Digital Currencies

Hong Kong-headquartered technological architect for China’s state-run Blockchain-based Service Network (BSN), Red Date Technology, has announced a new endeavour to render stablecoins and central bank digital currencies (CBDCs) compatible in order to enable cross-border payments. Red Date revealed the rollout of the Universal Digital Payments Network (UDPN) at the World Economic Forum in Davos on Thursday. As per a UDPN white paper, the objective is to enable firms from other nations to “conduct business and settle in multiple authorized digital currencies.”

The business said in the document that the UDPN will perform the same role as the Swift network for the next generation of CBDCs and stablecoins. Society for Worldwide Interbank Financial Telecommunication Some view stablecoins as a practical alternative to Swift since they are tied to a certain currency or a bouquet of currencies. From January through June, a number of “global Tier 1 institutions” will engage in a sequence of proof-of-concept studies, as per Red Date, in which they will investigate how UDPN tackles the issues of “incorporating digital currency into everyday business, financial, and payment situations.”

Red Date did not reveal the identities of the banks. At the UDPN launch event, however, foreign bank leaders such as Deutsche Bank, Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered, and the Bank of East Asia participated in a panel discussion alongside Red Date. As per the project’s homepage, one of UDPN’s proof-of-concept tests focuses on CBDCs, researching “how two commercial banks employing UDPN framework may administer, issue, and distribute a token-driven central bank digital currency.”

This utilization case is more innovative than others, according to Red Date’s website, since “there aren’t many CBDC implementations in production throughout the globe.” The report makes no reference to China’s own CBDC, the eCNY, or digital yuan. As a result of China’s expansion of CBDC trials to many locations, the eCNY has emerged as the most extensively utilised CBDC in a major economy.

Nevertheless, Beijing continues to be apprehensive of any actions that may lead to capital flight. The government prohibits the usage of cryptocurrencies, including stablecoins, as a danger to financial sustainability. In 2015, China launched its own Cross-Border Interbank Payment System (CIPS) in an effort to gain more independence from the Swift network. Swift might serve as leverage for Western nations, like in the instance of Russia, which was disconnected from the system after its war on Ukraine.

Beijing has expressed support for the development of blockchain technology in recent years, but its acceptance has been gradual. It is unclear if blockchain technology is a factor in the eCNY’s allocation, since it is not controlled on a blockchain. Red Date, state-run telecommunications company China Mobile, bank-card clearing provider UnionPay, and the State Information Centre, a government research institute under the National Development and Reform Commission, formally debuted the BSN in 2020.

Red Date Technology, the government-backed company behind the Blockchain Service Network, anticipates that its latest Universal Digital Payments Network will satisfy the same function as the society for Worldwide Interbank Financial Telecommunication (Swift), but also for stablecoins and central bank digital currencies. This utilization case is more innovative than others, according to Red Date’s website, since “there aren’t many CBDC implementations in production throughout the globe.”

The report makes no reference to China’s native CBDC, the eCNY, or digital yuan. As a result of China’s expansion of CBDC trials to many locations, the eCNY has emerged as the most extensively utilised CBDC in a large economy. Nevertheless, Beijing continues to be apprehensive of any actions that may lead to capital outflows. The government prohibits the usage of cryptocurrencies, including stablecoins, as a danger to financial sustainability.

In 2015, China launched its own Cross-Border Interbank Payment System (CIPS) in an effort to gain more independence from the Swift ecosystem. Swift might serve as a reward for Western nations, like in the instance of Russia, which was disconnected from the system after its war on Ukraine. Beijing has expressed backing for the growth of blockchain technology in recent years, but its acceptance has been gradual. It is unclear if blockchain technology plays a part in the eCNY’s allocation since it is not controlled on a blockchain.

Red Date, government-owned telecoms company China Mobile, bank-card settlement provider UnionPay, and the State Information Centre, a governmental research institute under the National Development and Reform Commission, formally debuted the BSN three years back. Its primary objective is to promote blockchain implementation in commercial IT systems without the use of cryptocurrency. Red Date personnel, including CEO Yifan He, have earlier opposed cryptocurrencies vehemently, referring to them as “the largest Ponzi scam in the history of mankind.”

The firm runs a blockchain framework solution in China referred to as BSN-Distributed Digital Certificate (BSN-DDC), which enables businesses to issue non-fungible tokens (NFTs) on modified versions of public blockchains without using cryptocurrencies. In September, BSN launched Spartan Network, a public blockchain initiative that targets enterprises beyond China’s mainland. The network introduced three open blockchains Ethereum, Cosmos, and Polygon Edge forks.

Red Date stated at a conference in Hong Kong during that period that the service’s inaugural batch of customers included established businesses including Emperor Group, HSBC, Lan Kwai Fong Group, and Maxim’s Group.