China launches cross-border payments platform

Heavily anticipated China International Payment System goes live, with StanChart and ICBC Singapore announcing successful transactions on new platform

The China International Payment System (CIPS), a cross-border renminbi clearing and settlement platform, went live on October 8, marking a major step towards renminbi internationalisation.

At least two banks, Standard Chartered and the Industrial and Commercial Bank of China's (ICBC) Singapore unit, have already carried out transactions on the system.

In a statement on its website, the People's Bank of China described CIPS as an "important financial infrastructure" and "milestone" that will "promote the internationalisation of the RMB".

"The renminbi has become China's second largest and the world's fourth largest payments currency," the central bank said. "[There is] urgent need to build the infrastructure to support business development."

CIPS consolidates a complex web of existing clearing and settlement mechanisms, provided by correspondent banks in China or offshore clearing banks. It allows market participants abroad to clear renminbi transactions with their Chinese counterparts between 9am and 8pm Beijing time.

"CIPS will improve the RMB clearing and settlement standards in China, aligning with international practice and processes," said Raymond Yeung and Louis Lam, China economists at ANZ in Hong Kong, in a note. "Participating institutions can directly access the CIPS, cutting transaction costs and processing time."

The first batch of institutions directly participating in CIPS includes 19 domestic and foreign financial institutions, including several big western banks with operations on the mainland, the central bank said. Indirect participants, meanwhile, include 38 domestic banks and 138 offshore banks.

On October 8, Standard Chartered's Chinese unit completed a renminbi clearing transaction from China to Luxembourg for Ikea, the Swedish retailer – its first through the new platform.

"CIPS will enhance China's connectivity with the global financial system, providing a highly efficient platform for cross-border RMB settlement," Michael Vrontamitis, Standard Chartered's head of trade, said in a release.

"The accelerating use of the RMB as a currency for international trade and investment will be well served by CIPS' extended operating hours and efficient processing capability."

Lena Li, treasury manager at Ikea China, said direct RMB clearing enables a "simpler payment route and enhances Ikea's liquidity management".

Meanwhile, ICBC Singapore announced the "successful clearing of a record volume" of 35 million yuan ($5.5 million). "The launch of CIPS represents a turning point in the internationalisation of the [renminbi]," Zhang Weiwu, general manager of ICBC Singapore, said in a statement.

In the near term, the launch of CIPS is not likely to lead to a big change in existing clearing and settlement practices of offshore counterparties, said Yeung and Lam.

"The clearing bank model and agency bank model will continue to operate," they said. "Offshore banks will conduct their RMB clearing business depending on their own business strategy and relationship with other financial institutions."

"However," they added, "CIPS will provide flexibility for banks with strong onshore presence to arrange their clearing arrangements."

This article was originally published on sister website CentralBanking.com.