Chinese Blockchain Trade Finance System Begins First Testing Phase

Blockchain China trade finance system cryptocurrency

A blockchain trade finance system being developed by China’s central bank has entered its first testing phase today, in a significant milestone for the platform before it is rolled out to suppliers more broadly.

Known as the Bay Area Trade Finance Blockchain Platform, the project, which is being pioneered by the People’s Bank of China, has already been deployed across banks in Shenzhen, pending final trials ahead of its official launch.

The Bay Area is a region of China that encompasses the cities along the Pearl River, alongside the autonomous regions of Macau and Hong Kong. Set up as an economic development zone, the area will host the trials of the trade finance platform before a decision is taken as to its wider rollout.

The brainchild of the Digital Currency Research Lab at the People’s Bank, the project aims to streamline trade finance arrangements with more efficient interbank transactions, while allowing data to be automatically shared across the distributed network.

As well as improving access to capital, especially for small and medium-sized firms, the model also allows for greater regulatory oversight, as well as helping prevent fraud while strengthening risk control measures.

The move to testing is a significant milestone in the development of the application, which could have a significant impact across sectors reliant on trade financing models.

It comes at the same time as a similar trade finance platform is being developed in Hong Kong, under the guidance of the Hong Kong Monetary Authority, the region’s de facto central bank. The Hong Kong project is also expected to be launched later this month.

The development shows how central banks and institutions are turning to blockchain technology to improve processes in financial services. As well as the secure, decentralized nature of these networks, on-chain technologies like smart contracts can help automate processes such as data sharing and ID verification, reducing the costs of processing these types of arrangements, as well as delivering finance more seamlessly throughout the supply chain.

With the testing phase in the Bay Area now underway, the next step will see the model proceed on a wider basis, potentially redefining trade finance relationships across China. From there, it is likely the technology will inspire other global central banks to develop similar models.