Cross-border International Payments System - CIPS

[JSCh]

China launch of Rmb payments system reflects Swift spying concerns - Financial Times
Clearing and settlement scheme will streamline international payments and guard against US snooping

Thursday, 8 October, 2015
by: Gabriel Wildau in Shanghai

China launched a cross-border renminbi payments system on Thursday, a big step in its drive to boost international use of the Chinese currency and protect itself from US spy agencies with access to the Swift system.

Chinese leaders want the renminbi to rival the US dollar as a global currency for trade and investment. The “redback” is now the fourth most-used currency for global payments but its share by value remains low at just 2.8 per cent in August, according to Swift.

In addition to opening its domestic capital markets to foreign investment, authorities hope that replacing the convoluted system for clearing and settling renminbi payments with a streamlined platform will promote greater use of the Chinese currency.

“As the cross-border renminbi settlement framework approaches completion, it will inevitably stimulate greater renminbi demand from market participants,” Ma Jun, People’s Bank of China chief economist, said last month.

Currently renminbi payments to and from China are slow and costly to execute. China’s domestic payments system only supports Chinese characters, making it incompatible with Swift, the secure messaging system banks use to exchange payment details.

In mid-September the PBoC sent detailed instructions to 19 banks that will start implementing the new China Internatinonal Payments System (CIPS) this month. The Chinese units of eight foreign banks including HSBC, Standard Chartered and Citibank were among those selected.

"The establishment of CIPS is an important milestone in RMB internationalisation, providing the infrastructure that will connect global RMB users through one single system," said Helen Wong, greater China chief executive at HSBC.

In addition to solving interoperability issues, experts say China also wants to reduce its reliance on Belgium-based Swift, whose governance is dominated by US and European banks.

In a sign of how vital Swift has become to global finance, Russian Prime Minister Dmitry Medvedev warned in January that an EU proposal to exclude Russia from the system over the conflict in Ukraine would elicit an “unlimited” response from Russia. “If there is no Swift, there is no banking … relationship,” said a top Russian banker at the time.

Spying is also a concern. The US National Security Agency has targeted Swift as a means to track international payments, according to NSA documents leaked by Edward Snowden.

China “wants to facilitate cross-border international business transactions, but you also have to wonder if there’s another angle here,” said Gerard Comizio, chair of global banking practice at law firm Paul Hastings in Washington.

“They’re now relying on a payments system that is highly susceptible to being accessed by intelligence agencies from the US.”

Currently most cross-border renminbi payments are routed through offshore renminbi clearing banks that the PBoC has appointed to serve Hong Kong, Singapore, London, and other offshore renminbi centres. As overseas affiliates of big Chinese lenders, the clearing banks can use internal channels to recycle offshore renminbi back into China and have access to liquidity from the PBoC.

The clearing banks are crucial because China’s domestic interbank clearing and settlement system, the China National Advanced Payment System (CNAPS), does not support international payments.

“CIPS is trying to be the middleman between Swift and CNAPS. That makes the process smoother because Swift cannot talk to CNAPS,” said Raymond Qu, chief executive of Geoswift, which facilitates cross-border renminbi payments for banks and merchants.

CIPS is modelled on the Clearing House International Payment System (CHIPS), the US dollar payments network that supports about $1.5tn in payments each day.

The new system will eventually allow offshore banks to participate, enabling offshore-to-offshore renminbi payments as well as those in and out of China, but the initial rollout only includes onshore entities.

CIPS will also begin by using Swift for interbank messaging, but eventually the system will have the ability to operate independently.

“In the future CIPS will move in the direction of using its own dedicated [communications] line. At that point it can totally replace Swift,” said a person with knowledge of the PBoC’s plans for CIPS.

Additional reporting by Ma Nan

https://next.ft.com/content/84241292-66a1-11e5-a155-02b6f8af6a62

 

[cirr]

China Starts Cross-Border Yuan Payment System to Bolster Usage

By Fion Li Molly Wei

October 8, 2015 — 12:21 AM EDT

Some 19 banks are directly participating including ICBC, HSBC

Move comes as China seeks to be added to IMF's SDR basket

China has started a payment system for cross-border yuan transactions, part of the nation’s plan to bolster the currency’s global usage and win reserve status from the International Monetary Fund.

The People’s Bank of China on Thursday initiated the first phase of the China International Payment System, which provides clearing and settlement services, it said in a statement on its website. Some 19 lenders including Industrial & Commercial Bank of China Ltd. and HSBC Holdings Plc’s subsidiary in China are directly participating, the PBOC said.

China wants to make the yuan more "freely usable" in global trade and finance to support its bid to be included in the IMF’s Special Drawing Rights basket along with the dollar, euro, yen and pound. The yuan overtook the yen to become the world’s fourth most-used global payments currency in August, shrugging off a surprise devaluation that month.

“The new system provides an additional choice for cross-border yuan trades and hence helps the currency’s internationalization,” said Kera Kong, a strategy planner at BOC Hong Kong Holdings Ltd. "The growth of yuan usage in Asia Pacific has been very fast, which will also bolster yuan transactions in Europe and Americas."

The payment system operates from 9 a.m. to 8 p.m. in Beijing, Xinhua News reported Thursday, citing the PBOC. The real-time yuan settlement platform in Hong Kong, which processed a record 21.8 trillion yuan ($3.4 trillion) of transactions in August, runs from 8:30 a.m. to 5 a.m. the next day. The city had 979 billion yuan of deposits at the end of August, the world’s biggest stockpile outside of China.

Standard Chartered Plc’s China unit completed a yuan clearing transaction using the new cross-border payment system from China to Luxembourg for the Swedish retailer IKEA Ltd., the bank said in a statement on Thursday.

“The launch of CIPS means more trades between China and its partners will be denominated in the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “Hong Kong is still competitive in the offshore yuan business given its proximity to China and established infrastructure. It can benefit from the bigger yuan market that CIPS facilitates.”

China Starts Cross-Border Yuan Payment System to Bolster Usage - Bloomberg Business

 

[JSCh]

Cross-Border Interbank Payment System launched in Shanghai
By Chen Jia (chinadaily.com.cn) Updated: 2015-10-08 09:08

China's Cross-Border Interbank Payment System, designed as an "expressway" to facilitate the yuan's use in international trade and investment, began operations in Shanghai on Thursday.
The system, or the "CIPS", provides the services of cross-border clearing and payment for domestic and foreign financial institutions.

As an important infrastructure construction of the country's financial system, the CIPS is expected to effectively increase global usage of the currency by cutting transaction costs and processing times, which replaced the former system composed of numbers of agent banks.

Fan Yifei, deputy governor of the People's Bank of China, or the country's central bank, said at the system's opening ceremony that the establishment of CIPS is a milestone as the country is accelerating infrastructure construction of the financial system.

It is a sign that indicates major progress in building the modern payment system covering both domestic and foreign markets, Fan said.

Experts also called the system one of the "biggest hurdles" to the internationalization of the yuan.

The CIPS started to work after the global transaction service provider Swift reported on Tuesday that in August the yuan surpassed the Japanese Yen to be the world's fourth largest payment currency.

Yuan-denominated payment accounted for 2.79 percent of the global market by August, expanded from 1.39 percent in January of 2014, according to the Swift.

The CIPS' opening fulfilled the promise made by Premier Li Keqiang at the "Summer Davos" opening speech last month that "By the end of the year, the CIPS will be launched to support the further development of the offshore yuan market and the ‘going global' strategy of Chinese enterprises".

For the first phase of the CIPS, 11 domestic banks and eight foreign banks have been approved by the central bank to directly participate in the transactions under the new system.

A limited company that is in charge of the system's operation was established in Shanghai on Sept 8.

 

[TaiShang]

New system to promote yuan in global trade
By Xie Jun Source:Global Times Published: 2015-10-9

China’s economic rise makes yuan’s use ‘inevitable’

China's central bank on Thursday officially launched the first phase of the country's Cross-border Interbank Payment System (CIPS) designed to facilitate the greater use of the yuan in international trade, hailing it as a milestone in the yuan's internationalization.

The system, which mainly provides cross-border clearing and payment services for domestic as well as overseas financial institutions, will boost the global use of the yuan by cutting costs and processing time, according to Fan Yifei, deputy governor of the People's Bank of China (PBC).

Previously, cross-border yuan clearing had to be done through one of the offshore yuan-clearing banks in Hong Kong or London, or with the help of a corresponding bank on the Chinese mainland.

"CIPS is an important milestone in the internationalization of the yuan," said Fan during its launch in Shanghai, according to the Xinhua News Agency.

CIPS will play a significant role in shoring up China's real economy and promote domestic enterprises "going abroad," said Fan.

Nineteen banks will be directly involved in the CIPS, including four major Chinese banks, HSBC (China), Citibank (China) and Standard Chartered (China), all of which are allowed to open accounts with CIPS and receive services directly.

In addition, 38 Chinese banks and 138 foreign financial institutions have been approved as indirect participants. They are entitled to CIPS services through the 19 banks directly involved.

Less than an hour after it was launched, more than 300 transactions worth 676 million yuan ($106 million) had been completed through the new payment system, according to the China Securities Journal on Thursday.

Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges, told the Global Times on Thursday that the new CIPS makes cross-border clearing and payment transactions more efficient, thus widening the yuan's use.

The PBC also said the yuan's current cross-border clearing methods, like intermediate clearing banks, would "continue to exist based on market demands."

Xi Junyang, a professor with the department of finance at the Shanghai University of Finance and Economics, also told the Global Times on Thursday that since China's overseas economic activities have increased, and demand for yuan payments have strengthened, it's "inevitable" for the yuan to be used more globally.

In August, the yuan overtook the Japanese yen as the world's fourth-largest payment currency, global transaction service provider Swift reported on Tuesday.

Data from Swift also showed that the yuan recorded a record high of 2.79 percent of all global payments by August, up from 0.6 percent at the start of 2013. More than 1,700 financial institutions processed yuan payments in August, up 14 percent from the previous year.

Xu also said that expanding the yuan's usage in offshore markets can promote China's trade with other countries. "If the yuan is no longer required to convert to other currencies in cross-border transactions, it would reduce the exchange rate risks caused by fluctuations of other currencies, particularly the US dollar," he noted.

The Chinese government has launched a series of measures to promote the yuan's internationalization, such as seeking the inclusion of the yuan in the International Monetary Fund's (IMF) special drawing rights (SDR) along with the euro, US dollar, yen and UK pound.

But experts said the yuan's internationalization might also bring about challenges, such as placing domestic banks under the glare of global economic trends.

But Xu said that China "has the ability" to cope with such risks.

The new system offers several advantages, such as tighter risk management and a friendlier user interface, according to a document Citibank (China) sent to the Global Times on Thursday.

The PBC has established a company in Shanghai in charge of the system's operations.

In 2016, the system's operating company will launch a charging scheme, which only targets the system's direct users.

Xinhua contributed to this story

 

[Beidou2020]

CIPS seeks greater share of cross-border yuan payments

China's cross-border yuan payment system is improving its security and messaging standards in an attempt to become a mainstream platform for clearing and settling cross-border yuan payment.

Widely known as CIPS, the system currently processes cross-border renminbi payments for trade, direct investment, financing and personal remittance. Prior to the launch of CIPS last year, most such payments were processed either through designated offshore clearing banks or correspondent banks.

While CIPS has proven more efficient, the volume of payments it handles trails other channels due to its functional limits. For example, current operating hours leave the Americas uncovered.

Li Wei, executive director of China International Payment Service Corp.which operates CIPS, said on Friday that the payment system is working with SWIFT to make MT messaging standards, widely used in cross-border banking transactions, compatible with the ISO20022 standards used by CIPS, through a conversion scheme.

CIPS had 19 directly participating banks and another 176 banks indirectly involved when it was launched in October. Indirect participants have grown to 253 since then, but the increase is small when compared with overall growth of the Chinese currency in global payments, according to Zhang Xin, general manager of CIPS.

Another dozen banks are expected to become direct participants by the end of this year and the system will be connected to the bond and foreign exchange markets. An extension of operating hours to handle transactions with the Americas is under consideration.

To ensure secure operation on CIPS, SWIFT is also working with banks engaged in cross-border payments to improve automated processing and reduce operational risks, according to Daphne Huang, SWIFT head in China.

CIPS is also building a back-up system to ensure smooth operations in case of transactions in Shanghai being unexpectedly disrupted.

Li expects CIPS to evolve into a more secure and efficient system with expanded time zone coverage and take a greater share in handling cross-border yuan payments, though offshore clearing banks and correspondent banks will continue to be used.

 

[jkroo]

Come on, CIPS.

Time to grow strong to ensure the financial stability.

 

[ahojunk]

Swift dips into China with CIPS
Stefania Palma | 1/07/2016 9:00 am

Financial messaging provider Swift’s memorandum of understanding with China’s Cross-border Inter-Bank Payment System could greatly facilitate cross-border renminbi payments, as Stefania Palma discovers.

It is undeniable that the use of renminbi for payments and transactions worldwide is growing. According to the latest data from financial messaging provider Swift, the renminbi is now the world’s fifth most popular currency for payments. And now that the International Monetary Fund has included the renminbi in its special drawing rights basket, usage could increase further.

As the currency has become more internationalised, so Chinese regulators have had to provide the infrastructure to settle and coordinate cross-border renminbi payments. Hence the establishment in 2015 of the Cross-border Inter-Bank Payment System (CIPS), China’s renminbi payments and settlement system.

Underwhelming start

At its launch however, CIPS left much to be desired in terms of meeting international clearing standards and in overcoming the Chinese-English language barrier in its messaging system. It was also only linked to 19 banks in China, meaning that an offshore entity wanting to clear renminbi had to either reach out to one of these 19 banks, go through the renminbi offshore clearing centres or use the correspondent banking model.

But in March 2016, CIPS signed a memorandum of understanding (MOU) with Swift. The two companies started carrying out joint seminars just a week after the signing, and their partnership could go live by 2017.

Although the collaboration is still fresh, it could unlock enormous potential for cross-border renminbi payments and settlements. China’s brand new clearing system is now linked to the most widely used messaging service in the world and has access to its global network.

There are 2000 entities carrying out renminbi transactions via Swift and the firm has 400 customers in China. “We can help CIPS link up to our customers worldwide, who total 10,000,” says Daphne Huang, head of China at Swift.

“We want to help CIPS leverage Swift’s network and increase the number of partners more quickly. This will happen because a more standardised model will make people more comfortable using renminbi,” says Ms Huang. “We were a natural fit to facilitate renminbi adoption worldwide. We are able to promote CIPS among the financial community.”

This collaboration could also help banks simplify the back-office work associated with cross-border renminbi payments. At the moment, every bank follows a different model. “We want to work with CIPS to improve market practices and create a set-up that banks can follow when it comes to back-office operations involving renminbi,” says Ms Huang.

Language barriers

The biggest hurdle to overcome in standardising the system, however, is the language difference. “Solving the language issue in making and clearing renminbi payments is still a work in progress. It is not an easy issue to solve,” says Ms Huang.

More generally, Swift and CIPS will need to work together to finalise a standardised model for offshore entities to clear renminbi. “We want to set legal and funding requirements, terms and conditions and messaging standards,” says Ms Huang.

While the Swift-CIPS collaboration bodes well, achieving the MOU was not easy at first given misunderstandings in China about Swift’s responsibilities. “In China there was confusion about Swift’s role. Some people see Swift and CIPS as competitors. But we manage a platform and are a network supplier. We do not do clearing, as in CIPS’s case,” says Ms Huang. “When we talked to CIPS, we said: ‘Why build your highway if the highway exists already? As of now it’s as if you are selling a car but nobody can drive it on the highway that’s already built’.”

Before the MOU, there were also preconceptions about Swift’s roots. “The perception of Swift was not positive before we started talks with the People’s Bank of China [the country's central bank]. A vast number of people thought we were driven by the US. Now they understand we are associated with Belgium,” says Ms Huang.

The partnership is very promising, so much so that Swift has already made plans to consolidate its presence in China. “Swift will increase resources in China by 20% to 30% by 2020 as our commitment to the country grows,” says Ms Huang. “This market is now a top priority among senior Swift management. Our target is for our China business to double in revenue by 2020.”

 

[Shotgunner51]

The cross-border interbank payments system (CIPS) launched by the Chinese central bank on 8 October 2015 has made it much easier for correspondent banks to execute payment instructions on behalf of clients participating in cross-border transactions denominated in renminbi (RMB). The fact that CIPS has also adopted the ISO 2022 international payments messaging standard is now facilitating the widening of the cross-border connectivity of CIPS, not only with other payments market infrastructures (PMIs), but with correspondent banks around the world as well. All the speakers in a session on CIPS at Sibos in Geneva on 26 September 2016[1] agreed that the use of global messaging standards by the new infrastructure is increasing RMB transaction volumes and accelerating the evolution of the RMB into a major global currency.

The first anniversary of the launch of the cross-border interbank payments system (CIPS) in China has just passed. Its adoption of global payments messaging standards is now set not only to accelerate the growth of CIPS, but to further internationalise the renminbi (RMB).

CIPS was launched in October 2015 by the People’s Bank of China (PBOC), and has since seen 27 direct participants and almost 400 indirect participants begin to use the system. Daily transaction volumes are around RMB 40 billion.

A catalyst for the growth in the number of participants using CIPS has been the memorandum of understanding (MoU) agreed between CIPS and SWIFT, and signed in Beijing in March this year. The MoU is helping the new payment system to integrate with the global banking community.

To showcase the progress of CIPS since it penned the agreement with SWIFT, leading experts from the Chinese payments sector gathered at Sibos to explain current and future developments, in the context of the ongoing internationalisation of the RMB.

From a practical perspective, a key priority is to ensure CIPS is inter-operable with international banks and payment market infrastructures (PMIs) through adoption of recognised processes and protocols.

“CIPS is working with SWIFT to update its user manual,” said Xin Zhang, General Manager, China International Payments Service Corporation.

“We will evolve it into a comprehensive CIPS Rulebook which covers the standardised CIPS ISO 20022 messaging practices, the latest e-version of the Chinese Commercial Code (e-CCC) table, as well as the RMB payment routing reference data. Very importantly, we are also working on leveraging the SWIFT network to connect more overseas participants and enhancing our global RMB transaction data analysis platform.”​

Read more and download the PDF file at https://www.swift.com/insights/news/cips-accelerates-the-internationalisation-of-the-rmb