China’s payment system delays knock yuan usage

China must start its cross-border payment system soon if it hopes for the yuan to be added to the IMF’s basket of four reserve currencies, feedback from a new industry survey has revealed.

Allen & Overy LLP interviewed 150 companies in the US, Europe and Asia-Pacific at the beginning of 2015. Some 74 per cent of those surveyed said that a delay in the start of the China International Payments System is a major obstacle to their use of cross-border yuan transactions.

The long-expected CIPS will offer a global platform for yuan transaction, fixing technical issues such as language and offering 24-hour settlement to boost worldwide use of the currency. The IMF requires a currency to be “freely usable” to pass the twice-a-decade review of the Fund’s reserve-currency basket.

But the CIPS has missed several key deadlines, and will now be pushed back until 2016, Bloomberg reported.

The IMF will conduct a review of the Special Drawing Rights in October after an informal briefing in May, possibly adding to its basket of reserve currencies that includes the dollar, euro, pound and yen.

A third of survey respondents are conducting cross-border pooling in Shanghai’s free-trade zone, and 53 per cent are considering doing so. Such a pooling structure allows companies to transfer yuan holdings in an out of China without getting approval from the foreign-exchange regulator.

Another sixty-four percent also said they would consider relocating regional treasury centers to China after further exchange-rate liberalization.

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