China’s UDPN targets to set up a Stablecoins-CBDC "bridge"

Hong-Kong based Red Date technology proposed a system called UDPN that will make stablecoins and Central Bank Digital Currency (CBDC) interoperable
To allow businesses to transact in different regulated digital currencies across borders
There are currently four active CBDCs worldwide, including China’s digital Yuan

There is a divide in the web3 world on the integration of fiat currencies into the digital currency system. Stablecoins aim to provide a constant relationship between digital currencies and fiat currencies. On the other hand, Central Bank Digital Currencies (CBDCs) are digital currencies issued by the government. Hong-Kong based Chinese Red Date technology proposed a system called UDPN that will make stablecoins and Central Bank Digital Currency (CBDC) interoperable, nullifying the debate.

The Universal Digital Payments Network (UDPN) is a Chinese initiative launched at the World Economic Forum in Davos, Switzerland. The project aims to allow businesses to transact in different regulated digital currencies across borders. UDPN is likened to SWIFT (Society for Worldwide Interbank Financial Telecommunications), which enabled banks worldwide to communicate and transfer money across borders through telegraphic or wire transfers. You may be familiar with your bank account having a SWIFT code for international transfers.

Red Date Technology

Red Date Technology is the Hong-Kong based company tasked to work on China’s ambitious Blockchain-Based Service Network (BSN). According to the BSN website, it is a cross-cloud, cross port and cross-framework global public infrastructure network used to deploy and operate all types of blockchain distributed applications (Dapps), which is a highly complex way of saying a blockchain network for applications and smart contracts. On this platform, developers can create applications and smart contracts and run them from there.

UDPN

The Universal Digital Payments Network (UDPN) promotes financial inclusion by allowing enterprises around the world to connect directly with the centralised and decentralised digital currency systems of the future. UDPN is for all government-regulated stablecoins and CBDCs. In addition to being a system, the UDPN serves as a distribution network to bring digital currencies to all enterprise IT systems, no matter how small or large, enabling the transfer and swap of different currencies.

Stablecoins

There are three types of stablecoin: fiat-backed, crypto-backed, and algorithmic. Fiat-backed stablecoins have a pegged value to traditional fiat currencies. Fiat-backed stablecoins keep reserves of fiat currency. These reserves can be exchanged for a stablecoin to maintain value. Crypto-backed stablecoins collateralize their tokens to factor in crypto price volatility, while algorithmic stablecoins control supply without needing reserves. Due to their practical use and large market capitalization, regulators are beginning to take a closer look at stablecoins. Some governments are even creating their own to maintain control over the currency.

Central Bank Digital Currencies

A central bank digital currency (CBDC) is the digital form of a country’s fiat currency A CBDC is interchangeable with the fiat currency of a territory. CBDC can be on a blockchain. There are currently four active CBDCs worldwide, including China’s digital Yuan. There are over 90 countries in the world working on CBDCs at various stages in their development. Africa currently has the struggling eNaira, while Ghana is testing the eCedi. South Africa stated that it would adopt a fast-follower approach to CBDC.

The European Union is hard at work on the Digital Euro while the UK is searching for a head of CBDC. One could think of CBDCs as combining the best of digital currency and fiat currency. The debate on whether this will be the case in practice is ongoing.

Whether this is what the world needs is still up for discussion. The apparent exclusion of decentralized stablecoins from the discussions raises a few eyebrows. That said, it is unsurprising to have such an idea coming out of China, mainland or otherwise. China has a heavy degree of centralization, even in centralized circles.