BEIJING: China yesterday launched a worldwide direct clearing system to encourage greater use of the yuan in cross-border trade and investment as part of efforts to promote globalization of the currency.
“The China International Payment System is an important milestone in the internationalization of the yuan,” said Fan Yifei, deputy governor of the People’s Bank of China, the central bank.
CIPS will cut costs and processing times for the yuan by offering direct capital settlement and clearing services for cross-border yuan transactions for financial institutions domestically and abroad.
Previously, cross-border yuan clearing had to be done either through one of the offshore yuan clearing banks in financial centers such as Hong Kong, Singapore and London, or with the help of a corresponding bank on the Chinese mainland.
Initially, 11 domestic banks and eight foreign banks are directly participating in CIPS, which is developed by the People’s Bank of China and will run from 9am to 8pm Beijing time.
In addition, 38 Chinese banks and 138 foreign financial institutions have been approved as indirect participants. They are entitled to CIPS services indirectly through one or more of the direct participants.
“The establishment of CIPS is an important milestone in yuan internationalization, providing the infrastructure that will connect global yuan users through one single system,” said Helen Wong, HSBC China chief executive.
“Because of the fast growth of cross-border yuan businesses, there is increasing demand for an international yuan clearing platform that adopts global market standards and offers efficiency in trading time … as well as risk and liquidity management.”
CIPS will put the yuan on an even footing with other global currencies in areas such as operating hours, risk reduction and liquidity optimization, said Zeng Gang, professor with the Finance Institute of the Chinese Academy of Social Sciences.
Standard Chartered Bank yesterday said it completed the first yuan clearing transaction under CIPS for furniture retailer IKEA from China to Luxembourg.
The first phase of CIPS supports trade settlement, direct cross-border investment, cross-border fund raising and individual money transfer.
The PBOC’s Fan said CIPS phase two will offer participants more flexibility.
