A big change for China’s cross-border RMB payment

Written by Ken Ding || April 09 2013

In order to facilitate the RMB’s cross-border settlement and promote the global use of the RMB, China’s central bank (the PBOC) is now building an international payment system called as CIPS (The China International Payment System). This CIPS is expected to take one or two years to launch and will make cross-border RMB trade settlement more efficient and safer.

Currently, RMB trade settlement is conducted through two channels: one is through the Hong Kong and Macau branches of the Bank of China which is the main clearing bank for HK / Macau settlement; the other is through domestic corresponding banks of overseas banks. Both channels must connect with the CNAPS (China National Payment System) to conduct RMB settlement, however, as the CNAPS uses the different standards from the international messaging known as SWIFT, current international transaction processing is relatively inefficient due to the need for manual interventional which can lead to operational risk issues. Moreover, as the RMB is increasingly used as an international settlement currency, the transaction costs of the existing two channels are much higher than settlement conducted in other major currencies, such as the US dollar. There problems has hindered the wider use of RMB in trade, which is at odds with the Chinese government’s ambition to enhance the RMB’s international role.

The China International Payment System will adopt global standards and will link domestic and overseas participants directly, and support different languages including Chinese and English. Li Yue, director of the payment and settlement department at the PBOC, also said that the working hours of CIPS will be extended to seventeen or eighteen from the current eight to nine hours to cover RMB settlement demand from different time zones.

There is no denying that this CIPS will offer a more efficient and lower-cost choice for RMB international trade settlement for offshore banks - these banks can choose CIPS members who directly connect with CIPS as their domestic corresponding banks. For domestic banks, they need to not only update their current payment systems to adopt the international standards but also develop a sophisticated RMB cross-border payment platform to offer better services for their foreign clients.