The CIPS is a global clearing platform for real-time settlements in Chinese Yuan or RMB. It connects China with most offshore yuan centers and supports cross-border goods and services trade settlement, direct investment, fundraising and personal remittances. It should stimulate greater renminbi demand from international markets and promote its global use by reducing transaction costs and processing times. The clearing of yuan payments with China will now be made in extended operating hours covering different time zones more efficiently.
Currently, most cross-border renminbi payments are routed through offshore renminbi clearing banks that the PBoC has appointed. The clearing banks are critical because China’s domestic interbank clearing and settlement system, the China National Advanced Payment System (CNAPS), does not support international payments, but only supports Chinese characters, making it incompatible with Swift, the secure messaging system banks use to exchange payment details. Therefore, the CIPS will not only reduce processing times but also the dependence on Swift, whose governance is dominated by US and European banks.
The new system will eventually allow, in a second phase, offshore-to-offshore renminbi payments, with the ability to operate independently and potentially replace Swift.