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According to the development plan 2019-2021 issued by Peop= le Bank Of China =E2=80=9CPBOC=E2=80=9D, six priority tasks have been= identified in order to strengthen the financial technology strategic posit= ion under a long term perspective.
We are therefore focusing on two key pillars: Blockchain Ser= vice Network =E2=80=9CBSN=E2=80=9D and Digital Currency Electronic Payment = system =E2=80=9CDCEP=E2=80=9D, that are both already undergoing testing pha= se by the PBOC.
Around these two pillars, Chinese corporations and associations wi= ll provide their blockchain operation services: IT, trade finance, supply c= hain, healthcare, insurance, digital identity by enterprises networks conso= rtiums.
Blockchain Service Network =E2=80=9CBSN=E2=80=9D and Digital Cur= rency Electronic Payment system =E2=80=9CDCEP=E2=80=9D.
According to business schedules, the project has been reassessed a= fter the Covid-19 pandemic outbreak and will be officially launched on July= 31st 2020. The project foresees a kick-off phase of 200 nodes, locat= ed all over China Mainland and overseas. BSN has already partnered with AWS= China in order to speed up the internationalization process establishing i= tself as the foundation for to be seen as a =E2=80=9Cgate=E2=80=9D through = which enterprises and governments can interoperate via cloud. Potentially, = a perfect duo to let private and public data achieve the best performances.=
DCEP is a software solution consenting PBOC to issue and manage th= e first sovereign digital currency backed to the =E2=80=9Cfiat=E2=80=9D val= ue of renminbi. It is mainly a technical transformation of the mechanism fo= r the issuance and circulation of RMB.
It is sectioned in two operative layers: while the first one invol= ves PBOC and commercial banks, the second one involves Chinese commercial b= anks and end users,businesses or physical persons.
As for now, the DCEP does not necessarily use blockchain technolog= y, since it leverages on asymmetric cryptography, which is fundamentally th= e reason for the efficiency and security of electronic payments provided by= the DCEP ; furthermore it is fully implemented on a distributed ledg= er technology for securing transactions.
The DCEP also makes possible features into a digital wallet, altho= ugh under a more centralized perspective.
Blockchain solutions can be potentially implemented only at = the first layer of the operative system, in that it allows to notify,= allocate and record digital currency operations from PBOC to other co= mmercial banks.
Besides, How will the rest of the big financial players,Alip= ay and Wechat Pay just to name two of them, will be involved in this system= , especially if this will push them out of the market?
We can only argue that the preexisting digital currency chan= nels will be involved in the money transfers in favour of consumers. = Due to their market position , these players are used to play a a vital rol= e when it comes to ensuring the security of holdings and the facilita= ting transactions.
In the long term, we are likely to witness an interaction in= terms of off chain transactions usage in t a second layer context for= connecting consumers, while the first layer would be supported by on chain= transactions connected with a centralized authority (PBOC). This solution = may help shape a payment system capable of boosting performance= s when dealing with a huge number of transactions per second.
In addition to this, China UnionPay Corporation and China Mobile F= inancial Technology Co., Ltd. are now both involved in current digital tran= sfers of currency and are also the founding partners of BSN. This picture&n= bsp; suggests a potential integration of DCEP with BSN, which m= ight empower mainland and overseas transfers.
How is it possible for BSN and DCEP to interoperater? =
BSN is still at the first layer andis also working as a cloud solu= tion for blockchain application providers. The fact that big players = like China Union Pay are involved in the project may lead to the conclusion= that a digital state currency issued by PBOC may be installed on the netwo= rk.
In a middle term perspective, we will probably see these two pilla= rs working jointly : DCEP will act as a centralized crypto running on a dec= entralized cloud architecture (BSN), capable of providing different blockch= ain solutions to different business enterprises. The combination of t= hese two assets will constitute a safer, stronger and quicker means f= or supporting investments.
Business sector associations, such as the Chinese Bank Assoc= iation, are starting to implement their own solutions focusing on branches&= nbsp; like trade finance, supply chain finance, supply chain operations and= logistics, copyrights and IP, judicial and legal, health and digital ident= ity.
Blockchain service providers, like Aliyun, Baidu to name one, will= easily run their BaaS into BSN nodes providing blockchain solutions at che= aper implementation costs, crossing different markets needing and offering = customized solutions for each different business case.
In the long run, BSN will allegedly be considered as a strategic t= echnological architecture capable of assisting businesses from mainla= nd China to overseas strategic locations under a secure and distributed net= work.
On the other side, DCEP might stand as a way to fully drive = overseas investments in terms of political orientation and economic account= ability.
By joining together, these two pillars will give rise to a continu= ous flow of assets, both data and transactions, that will efficiently= support the execution of the Belt and Road Initiatives =E2=80=9CBRI= =E2=80=9D, along with other national investment development programs = that still are struggling in some areas of the world because of the lack of= interconnectivity, transparency, governance and accountability.
Please find the full report here.
DLT solution= s for trade and finance - China focus - Final report