A MERE BLIP FOR REAL-TIME PAYMENTS IN CHINA?

A delay in the rollout of the China International Payments System looks to be only a temporary hiccup in the renminbi’s unfolding internationalization.

The China International Payments System may be having teething pains. When the system was announced in 2012, it was considered an unstoppable outgrowth of the internationalization of the renminbi.

“Although the international renminbi clearing platform will take several years to develop, the basic functionality is expected to markedly improve access for foreign corporates as well as help accelerate the process of internationalizing the renminbi,”  Michael Vrontamitis, head of transaction banking, product management, for Standard Chartered Bank, wrote at the time CIPS was first announced. 

CIPS is intended to put the renminbi on an even footing with the US dollar and the euro in areas such as operating hours, risk and liquidity management. In a practical sense, CIPS, when it emerges, will replace a patchwork of networks and allow for more convenience in renminbi payments. The original unveiling for the first phase of CIPS was meant to be this year. However, market rumors put the launch date back to 2016. China’s central bank, which is overseeing the CIPS project, told Reuters that it was making “steady progress” on the system, but added no other details except that it believed the CIPS rollout was of “great importance.”

Despite the delay, hopes for a successful rollout are still high.“There is an expectation for the market to work at a higher rate of efficiency in the processing of renminbi payments once CIPS is in place in the next couple of years,” says Frankie Au, global head of renminbi products, transaction banking, at Standard Chartered, “particularly at a time when the market has highlighted several challenging aspects of renminbi settlements.”

One of those challenges: The financial messaging network SWIFT commonly uses Latin characters, but to message banks in China the network relies on Chinese commercial code. There are specific information requirements for CNAPS 2—the second-generation local market settlement system—which involves manual processing for renminbi payments.

CRACKS IN THE SUPERHIGHWAY

Many bankers contacted by Global Finance were reluctant to go on the record about CIPS’s status. It is understood that a governmental debate is under way over what limits should be imposed on the amount of renminbi transferred in a single day by CIPS users. The fear is that too fast a rollout would undermine China’s capital controls on its currency.

Right now, international clearing of the renminbi is handled by designated clearing banks in China, such as Bank of China, and by offshore centers, including Hong Kong, Singapore, London and Taipei. This is a lucrative business, and it has been observed that the major renminbi clearing banks may be relieved at CIPS’s delay, as the new payment system would eventually reduce the need for them.

No one thought that CIPS would be unveiled overnight. But two years down the road, developments on creating a global “superhighway” payment system for the renminbi have gone quiet, although the internationalization of the renminbi keeps moving at a rapid pace.

But the need for a superhighway for China’s currency is not universally felt. David Blair, managing director and founding partner of Singapore-based treasury consultancy Acarate, says CIPS is modeled on CHIPS [the US high-value payment system]. He adds, “but CHIPS and Fedwire are domestic, and for renminbi, banks can use the many designated clearers as correspondents, so I do not understand why there is even a
need for CIPS.”

Perhaps the global nature of CIPS—as opposed to the domestic nature of CHIPS—is symbolic of China’s ambitions as a rising world power. Blair hints at this when he muses about the need for the system: “Could it be politics, a la the BRICS’s bank?” he asks, referring to the New Development Bank to be set up by Brazil, Russia, India, China and South Africa as an alternative to the World Bank and the International Monetary Fund.

At a policy meeting in November last year, the Politburo Standing Committee of the Communist Party of China reemphasized its commitment to speeding up financial reform, pledging to double the daily trading band of the renminbi–US dollar rate and easing restrictions on cross-border capital flows in the Shanghai Free-Trade Zone, the testing area for financial reforms.