China’s long-awaited global payment system to process cross-border yuan transactions is ready and could launch as early as September, Reuters reported on Monday, citing sources with direct knowledge of the matter.
The launch of the China International Payment System (CIPS) will pave the way for internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times.
CIPS, will be a global payments superhighway for the yuan and will replace an assortment of networks that make processing renminbi payments a more cumbersome process.
“The CIPS is ready now and China has selected 20 banks to do the testing, among which 13 banks are Chinese banks and the rest are subsidiaries of foreign banks,” a senior banking source who is involved in the matter told Reuters.
“The official launch will be in September or October, depending on the results of the testing and preparation,” the source added.
A second source said that authorities are looking to launch the first phase of CIPS prior to December.
Cross-border yuan clearing currently has to be done through an offshore yuan clearing bank in Hong Kong, Singapore, or London, or with the help of a correspondent bank in located in mainland China.
CIPS will allow for companies outside of China to clear yuan transactions with their Chinese counterparts directly, thus reducing the number of stages that a payment needs to go through.
“This is a big development for the small and medium enterprise sector operating in China as their correspondent banks can now access a wider network for settling payments in yuan, leading to lower costs,” the head of treasury solutions at a large European multinational company told Reuters.
For larger global firms, CIPS removes operational inefficiencies as companies will no longer have to worry about ensuring that yuan transactions are processed at certain times of day, as they do now, he added.
Last month, the IMF’s Deputy Managing Director Naoyuki Shinohara made a call for emerging Asian economies to actively engage in de-dollarization.
“In some cases, high dollarization can facilitate trade. But there are drawbacks, such as limiting exchange rate flexibility to mitigate against external shocks, and constraining the central bank’s ability to be the lender of last resort. Under such circumstances, consideration could be given to actively promote de-dollarization,” he said.
China’s yuan has recently emerged as one of the world’s top five payment currencies, overtaking the Canadian dollar and the Australian dollar, according to global transaction services organization SWIFT.
China has started to advertise the renminbi as the ‘new world currency’ as it continues to ramp up its drive for the globalization of its currency.