CIPS Is Out Of The Crib How Fast Will It Grow?

The launch of CIPS deserves fanfare—depending on whom you listen to.


As expected it drew some media attention, with the familiar theme that the renminbi—which surpassed the Japanese yen to become the fourth-most traded currency in the world in August, according to SWIFT’s RMB Tracker—will eventually overtake the US dollar as the dominant global currency.

The creation of a renminbi-dedicated cross-border clearing system is one pillar supporting the internationalization of the currency. The crucial one, however, is the opening of China’s capital account, a moving target that includes liberalization of the financial sector and cross-border investment flows.

Outside of China, innovation by financial institutions in developing risk management products to align with current and future renminbi demand will also facilitate the currency’s growing use.

The launch of CIPS deserves fanfare—depending on whom you listen to. “The establishment of CIPS is an important milestone in renminbi internationalization, providing the infrastructure that will connect global renminbi users though one single system,” Helen Wong, greater China chief executive at HSBC, told the Financial Times newspaper.

“By integrating the existing renminbi cross-border payment and settlement channels, CIPS will improve the efficiency of cross-border clearing to meet the increasing demand for renminbi worldwide,” stated Carl Wegner, managing director, Greater China head of Global Transaction Banking at Deutsche Bank, which is among the first batch of approved participants in the new payment system. Wegner says CIPS will also enhance and facilitate the security of transactions, thereby benefitting the industry as well as clients.

HSBC is one of eight foreign banks – others include Standard Chartered and Citi – whose Chinese branches received detailed instructions from the People’s Bank of China on CIPS implementation in September. They are among the clearing banks selected to replace the use of China National Advanced Payment System or CNAPS, which does not support cross-border payments. Until CIPS’s launch, most cross-border renminbi payments were routed through appointed clearing banks.

CIPS has been touted as an alternative to SWIFT, however, it will use the ISO 20022 XML standard to meet certain renminbi needs.

But there are those that are still waiting to be thrilled by CIPS’s launch. Much of the media coverage omitted the fact that the rollout is limited. According to the PBOC, CIPS is only operating out of Shanghai between the hours of 9am and 8pm local time, and it is only handling payments in the Asia-Pacific and Europe.

The United States has not yet been incorporated into the system. Moreover, clearing fees have not yet been disclosed, making it impossible so far to learn whether transactions cleared under CIPS will be less costly than those going via CNAPS.