Conflux — a blockchain company that enjoys government endorsements in some parts of China — is piloting an offshore renminbi (RMB) stablecoin in a free trade zone (FTZ) in Shanghai, in a move to boost cross-border payments.
Conflux said in a statement on Sunday the company, together with Shanghai Maritime University, has launched the Shanghai ShuTu Blockchain Research Institute to “promote the application of blockchain technology in the Shanghai (pilot) free trade zone.”
The new research institute will study and explore cross-border trading with an offshore RMB stablecoin to pilot trade with the digital currency.
The move comes after Shanghai in July was granted permission from Chinese monetary authorities to take the lead in the free use of RMB in the city’s Lingang special area, according to state media China Daily. Conflux said Shanghai was allowed to explore free trade with an offshore RMB stablecoin, as the city was designated as a focus of the country’s free trade and shipping in the nation’s five-year plan.
“Conflux Network, as China’s only regulatory compliant public blockchain, has strategically positioned its newest R&D center in Shanghai for this purpose, to work in close collaboration with key players in the region,” the company said.
While other blockchain companies have tried to penetrate China’s market with mixed success, Conflux — a Singapore-registered company — has received endorsements from the Shanghai and Hunan governments. The endorsements mean the company is officially recognized and enjoys a special status for winning government contracts in those regions.
For example, Chinese crypto blogger Wu Blockchain wrote in July that CNHC, a stablecoin pegged to offshore yuan, had announced a partnership with Conflux in a bid to promote the internationalization of the yuan and break the monopoly of the SWIFT system used by banks around the world.
See related article: What is the secret to Conflux Network’s success in China?
However, the People’s Bank of China (PBOC), the central bank, has previously expressed concerns over stablecoins. In July, Fan Yifei, a deputy governor at the PBOC, said at a briefing that stablecoins, especially so-called global stablecoins, could bring risks and challenges to international monetary mechanisms and clearing systems.
Conflux said the new research institute will rely on port openness and the company’s public blockchain, “carrying out the exploration and practice of the construction of an international payment channel for offshore RMB built on Conflux.” It will also work on shipping blockchain technology standards and shaping the new shipping ecology.
“The idea of a stablecoin to be used in cross-border trade within the FTZ is intriguing as it may allow for the more open use of RMB within a limited zone of use,” Richard Turrin, a Shanghai-based fintech consultant who recently published “Cashless: China’s Digital Currency Revolution,” told Forkast.News.
Turrin said the pilot is not a threat or an alternative to the e-CNY, the national digital currency being tested by the PBOC, as the proposed stablecoins are for use only within the free trade zone. “What is interesting to see is that China is open to experimenting with different forms of digital currency to achieve its goal of reducing dollar dependence.”
“The offshore RMB stablecoin cross-border use case looks like a preamble to a new paradigm of digital money, and can play a role in the long-term strategic goals of the PBOC, in deploying the e-CNY worldwide,” Amnon Samid, CEO of Israel-based cybersecurity company BitMint, who has extensive experience in the Chinese marketplace, told Forkast.News in an email.
Samid said the new research center in Shanghai will have to pay attention to electronic thieves in the process of cross-border payments.
Samid also said the key to the success of such a stablecoin lies in its versatility with respect to the full canvas of regulatory regimens. “Different countries run their financial matters differently … and the rules change from cash to credit to complicated financial instruments.”
The newly designed cross-border digital coin will have to be versatile enough to accommodate this variety while allowing global financial flow for the benefit of all, Samid said.