CIPS as a “game changer.” With the ability to handle cross-border renminbi clearing for both onshore and offshore participants, CIPS is expected to improve foreign corporates' access to RMB and to accelerate the pace of the currency's internationalization.
China’s International Payments System, or CIPS, is near its rollout, according to the latest information from the People’s Bank of China. Although CIPS has been delayed before, the unveiling of the system went live on October 8.
The dispensation of CIPS on a technical level, and its role in the internationalization of the RMB, is one of the hottest topics on the agenda next week at the start of Sibos in Singapore.
The RMB is increasingly being used in global trade flows and has become the fourth most traded currency in cross-border transactions, according to SWIFT's October 6 RMB Tacker, surpassing the Japanese yen and now only outpaced by the British pound, the euro, and the US dollar.
Banks have described CIPS as a “game changer.” With the ability to handle cross-border renminbi clearing for both onshore and offshore participants, CIPS is expected to improve foreign corporates' access to RMB and to accelerate the pace of the currency's internationalization.
The speed of the currency’s rise—not long ago it was the seventh most-traded currency—only underscores the need for a better international system to handle cross-border payments.
The China National Advanced Payments System (CNAPS), the first national payment clearing system in China, was introduced in 2005.
CNAPS is used in international yuan payments to China. Settlements in CNAPS amounted to approximately RMB 6.6 trillion ($1 trillion) in 2014.
CIPS, which has been undergoing testing among 20 banks, will feature clearer communication standards in both Chinese and English, and more importantly perhaps, it will adopt the new ISO 20022 standards, which will facilitate mapping between SWIFT and CNAPS messaging formats.
ISO20022 is a harmonized set of XML messaging standards across major financial services domains—from cash, securities, trade and foreign exchange—based on a shared data dictionary and business process model.
As the phrasing implies, the business modelling approach provides a common language for users and developers to represent financial business processes as they emerge.
This is particularly important for a new user like China, where banking models are changing at a rapid clip under the pressure of liberalization.
The US Federal Reserve classified maturity levels of financial institution adopters of ISO 20022, with those in Europe being dubbed “mature”; while South Africa, Japan, Singapore and Switzerland were considered to be “growing adopters”; and those in Australia, Canada, the United Kingdom and New Zealand as “interested adopters.”
When the rollout of CIPS does come, Chinese institutions will certainly be more than “interested” as state-owned institutions will by default fall into line.
Look out for engaged discussion at Sibos on how China’s long-awaited payments upgrade will be embraced.