Aiming to ensure continued usage of the renminbi for the future, the Chinese authorities recently launched its domestic cross-border interbank payment system (CIPS). Only around a week old the scheme has already drawn the participation of several international and regional banks.

 

But how significant is this new development and what is the effect on China’s National Advanced Payment System (CNAPS)?

 

Since CNAPS was established in 2005 it has provided the infrastructure to handle domestic payments in China. However, it had several limitations such as next day processing (T+1) and frequent repairing and manual intervention.  

 

Under the new CIPS system clearing hours will be extended to Asia, Africa and Europe and transactions will be cleared and settled in the same value date. Moreover, payment messages will be simplified to use a ISO 20022 structured format and SWIFT’s bank identifier.

 

“Over a period of time most of the transactions will go to CIPS and eventually CNAPS will not be part of the future,” comments Michael Vrontamitis head of trade at Standard Chartered Bank.

 

Standard Chartered was one of several banks that executed the first round of transactions on the CIPS platform when it went live on October 8.

 

According to Vrontamitis the first two days of the scheme saw the bank conduct around 456 transactions most notable being Ikea’s renminbi transaction from China to Luxemburg. Other first transactions on the new scheme include Industrial and Commercial Bank of China's (ICBC) 35 million renminbi trade settlement between Singapore-based Raffenet and Shanghai-based Baosteel Resources.         

 

Predictability the renminbi and the launch of CIPS has been one of the hot topics at this year’s Sibos event in Singapore with several banks at the conference agreeing that it is step in the right direction for China.

 

“As with anything else it’s going to take a bit of time to structure and build the system to make it resilient and robust to support growth,” says Ebru Pakcan, managing director and global head of payments at Citi. “I think CIPS is leveraging on the observations of other market infrastructures such as CHIPS in the United States.”

 

“CIPS is not going to increase the speed of internationalization of the renminbi, it’s just putting in the necessary infrastructure," explains Vrontamitis. "We believe they have built the infrastructure to be able to cope with the growth of renminbi internationalization. Clearing will not be an impediment to the growth of the renminbi.”

 

Based on the latest SWIFT data, the renminbi has been definitely growing and has now become the fourth largest payments settlements in the world.