China's central bank on Thursday launched a global payment system in a major step to facilitate yuan clearing transactions, bolstering Beijing's quest to internationalise its currency and challenge the primacy of the dollar in world finance. The cross-border interbank payment system, known as China International Payment System (CIPS), will remove one of the biggest hurdles to boosting yuan liquidity globally by cutting transaction costs and processing times.
The CIPS will be used to support cross-border goods and services trade settlement, direct investment, as well as financing and individual fund transfers, the People's Bank of China (PBOC) said in a statement. A total of 19 banks have been selected to participant in CIPS, eight of which are Chinese subsidiaries of foreign banks, including Citi, Deutsche Bank, HSBC and ANZ.
The announcement confirmed a Reuters report in March. The new system will put the yuan on a more even footing with other major global currencies like the dollar - CIPS is expected to use the same messaging format as other international payment systems - and helping to promote the currency in global trade where the dollar reigns supreme. It will also raise the global profile of the yuan as the International Monetary Fund considers whether to grant it elite status as a reserve currency, alongside the dollar, sterling, euro and yen. "Because of the fast growth of cross-border RMB businesses, there is increasing demand for an international RMB clearing platform that adopts global market standards and offers efficiency in terms of trading time and language as well as risk and liquidity management," said Helen Wong, HSBC's Greater China Chief Executive.
"We believe CIPS will meet that demand, boosting RMB use world-wide and paving the way for China's currency to become truly global," Wong added. China's yuan became the fourth most-used world payment currency in August, overtaking the Japanese Yen, global transaction services organisation SWIFT said on Tuesday. Daily operating hours of the system will be 9:00-20:00 local time and the central bank will consider extending it in future depending on market demand, the PBOC said in its statement.
Standard Chartered Bank (China) Limited said it had completed a yuan clearing transaction for Sweden's IKEA through the CIPS, the first such deal to be announced hours after Beijing launched the world-wide system. China Industrial and Commercial Bank Singapore also announced on Thursday that it had completed a trade settlement payment worth 35 million yuan ($5.51 million) from Singapore's Raffemet Pte Ltd to Baosteel Resources in Shanghai through CIPS.
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