China launches yuan-based global payment system

Yuan banknotes

China’s central bank has introduced a new cross-border payment system to allow yuan-based clearing transactions. The system is part of the country’s strategy to boost the international use of the currency and challenge the dollar’s international finance hegemony.

The currency has entered the top four of world payment currencies by value in August 2015, overtaking the Japanese Yen and reaching a record high share of 2.79 per cent in global payments, according to SWIFT, the communications platform which the banks use to exchange payment information.

The platform, China International Payments System (CIPS), intends to remove the earlier long-winded process of clearing and settling yuan payments and therefore boost yuan liquidity globally. The outgoing system only supported Chinese characters which were incompatible with SWIFT

The system aims to accomplish that by adopting global payment standards and the enablement of same-day clearing across Europe, Asia, Oceania as well other time zones.

It will support cross-border goods and services trade settlement as well as financing and individual fund transfers, the People’s Bank of China (PBOC) said in a statement.

So far 19 banks have signed up to participate in the system including eight Chinese subsidiaries of foreign banks such as HSBC, Standard Chartered and Citibank.

The launch of the system also comes at an important time for the status of the currency as the International Monetary Fund considers whether to make the yuan the elite status of reserve currency alongside the euro, pound, dollar 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.

So far 19 banks have signed up to participate in the system including eight Chinese subsidiaries of foreign banks such as HSBC, Standard Chartered and Citibank.

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