Company behind China’s state-backed blockchain project aims to create Swift for stablecoins and CBDCs

Hong Kong-based Red Date Technology, the technical architect for China’s state-backed Blockchain-based Service Network (BSN), is collaborating on a new initiative that aims to make stablecoins and central bank digital currencies (CBDCs) interoperable in order to facilitate cross-border payments.

Red Date and partners GFT, an IT solutions provider, and Toko, a digital asset creation platform, announced the launch of the Universal Digital Payments Network (UDPN) on Thursday at the World Economic Forum in Davos. The goal is to let enterprises from different countries “transact and settle in different regulated digital currencies”, according to a UDPN white paper.

“Just as the Swift network created the original common standard for messaging between financial institutions across different settlement systems, the UDPN will serve the same purpose for the emerging generation of CBDCs and stablecoins,” the companies wrote in the paper.

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The Society for Worldwide Interbank Financial Telecommunication (Swift) is the most widely used system for transferring funds between banks worldwide. Stablecoins are seen by some as a convenient way of bypassing Swift, as they are pegged to a specific currency or a basket of currencies.

A number of “global Tier 1 banks” will participate in a series of proof-of-concept trials from January to June, according to Red Date, during which they will explore how UDPN addresses challenges of “integrating digital currency into daily business, banking, and payment scenarios”, the firm said.

Red Date did not disclose the names of the banks. But representatives from international banks including Deutsche Bank, Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered and the Bank of East Asia participated in a panel discussion with Red Date at the UDPN launch event.

Red Date said the project currently supports four stablecoins: USDC, USDP, EUROC and EURS.

One of UDPN’s proof-of-concept tests targets CBDCs, according to the project’s official website, exploring “how two commercial banks using UDPN infrastructure can manage, issue, and circulate a token-based central bank digital currency”.

But “because there are not many CBDC examples in production around the world”, this use case is more experimental than the others, Red Date said on its website. Red Date said the project has not yet experimented with any CBDCs.

Absent from the paper is any mention of China’s own CBDC, the eCNY, or digital yuan. As China has expanded trials to several cities across the country, the eCNY has become the most widely used CBDC in a major economy.

“UDPN currently has no plans to support eCNY,” Red Date told the South China Morning Post by email. “A central bank must first agree to be integrated and then the decision to support any sovereign digital currency will be based on a vote between the (minimum eight) UDPN Alliance members. The UDPN Alliance is currently being assembled and will constitute technology service providers, global Tier 1 banks, and regional banks from around the world.”

Beijing remains wary of any moves that could contribute to capital flight. The government regards cryptocurrencies, which includes stablecoins, a threat to financial stability and has banned their use.

Yet China has also sought greater autonomy from the Swift network, launching its competing Cross-Border Interbank Payment System (CIPS) in 2015. Part of the concern over Swift is that is could act as leverage for Western governments, as in the case of Russia, where banks were cut off from the network after its invasion of Ukraine.

Over the past few years, Beijing has voiced support for developing blockchain technology, but its adoption has been slow. The eCNY is not managed on a blockchain, and it is not clear the technology plays any role in its distribution.

The BSN was officially launched in 2020 by Red Date, state-owned telecommunications giant China Mobile, bank-card clearing service UnionPay, and the State Information Centre, a government think tank under the National Development and Reform Commission.

However, Red Date said the government is “not connected or involved in any BSN or Red Date projects outside China”.

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The BSN’s main goal is to push the adoption of blockchain in enterprise IT systems without the involvement of cryptocurrencies. Red Date executives, including CEO Yifan He, have previously expressed strong opposition to cryptocurrencies, having called them “the biggest Ponzi scheme in human history”.

The company operates a blockchain infrastructure service in China called BSN-Distributed Digital Certificate (BSN-DDC), which lets companies mint non-fungible tokens (NFTs) on adapted versions of public blockchains without relying on cryptocurrencies.

In September, BSN also made a major push overseas with the launch of a public blockchain project called Spartan Network, which targets businesses outside mainland China. The network launched three open blockchains as forks of Ethereum, Cosmos and Polygon Edge.

More than 10 companies in Hong Kong became the service’s first batch of users, including traditional conglomerates such as Emperor Group, HSBC, Lan Kwai Fong Group and Maxim’s Group, Red Date said at an event in Hong Kong that month.