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China international payments system goes into action

Editor: Tong Xinxin 丨CCTV.com

10-15-2015 14:40 BJT

By Tom McGregor, CNTV Commentator

China is taking steps to expand its financial markets and to internationalize the remninbi (RMB Chinese currency). The first phase of China’s cross-border international payments system (CIPS) was launched in Shanghai  on October 8. Only businesses operating in Asia and Europe can wire RMB funds, such as remittances, to bank accounts in China, via CIPS.

Formerly, such transactions were conducted by off-shore bank accounts, primarily in London and Hong Kong, routed through SWIFT (society for worldwide interbank financial telecommunication), a network that enables global financial institutions to send and receive information about transactions.

China international payments system goes into action

China international payments system goes into action

The current global electronic payments system is dominated by US dollars, but CIPS could boost the RMB as a currency powerhouse. The new clearing system is expected to lower transaction fees for those outside China who are bankwiring RMB funds into the country.

RMB rising to prominence

The People’s Bank of China (PBOC) is leading CIPS, coordinating with 19 Chinese and foreign banks directly; and 38 Chinese banks and 138 foreign banks as indirect participants. Electronic funds transfers via the Shanghai office are transacted only on weekdays, 9 am-8 pm (Shanghai local-time).

Perhaps with more technical upgrades, we can expect 24/7 operations at a later date. And despite the slow start, the RMB’s rise is inevitable. The emerging markets welcome an alternative currency to challenge the US dollar.

Latin American countries are struggling with huge fiscal debts as the US dollar continues to soar higher in value against regional currencies. Nevertheless, Beijing is softening the impact.

Last May, Chinese Premier Li Keqiang visited Chile and signed a 22bn RMB currency swap deal to boost bilateral trade and investment and to strengthen the Chilean peso. China had granted a quota of 50bn RMB to qualified institutional investors in Chile. China Construction Bank would act as the RMB clearing bank, a first in South America.

New Silk Road for electronic payments

China is raising its geo-political and economic profile. Beijing hopes to encourage more international trade. Beijing is embarking on 'the Belt and Road Initiative (B&R)’, announced by Chinese President Xi Jinping in 2013.

The ‘Silk Road Economic Belt & 21st Century Maritime Silk Road’ is expected to enhance transportation, energy and financial networks throughout Africa, Asia and Europe that would deepen economic cooperation.

" 'The Belt and Road Initiative’ is a great undertaking beneficial to all along the line,” English Eastday quotes Ben Shenglin, executive director of the International Monetary Institute at Remnin University in Beijing, as saying. “It also offers a historic golden opportunity for the RMB internationalization.”

He pointed out that CIPS could “prevent financial risks, lower transaction costs, enhance overall economic competitiveness, while accelerating the integration of trade and economy in the region.”

Need for further CIPS upgrades

The CIPS roll-out has not gone smoothly. The official launch date was scheduled last year, but delayed due to technical difficulties. The payments system is limited to certain regions in the world, while securities transactions and large capital transfers for foreign direct investments are not permitted for the moment.

But let’s not forget the old saying, “Rome was not built in a day.” In our age, New York City is standing tall as the world’s financial capital with Wall Street banks transmitting a daily average of about $US1.5 trillion of electronic funds transfers. Apparently, China has a long way to go before catching up with New York and London bankers.

Easier RMB access for globalization

CIPS remains a work in progress, but demonstrates major progress for RMB internationalization. Beijing is applying a request to the International Monetary Fund (IMF) for the RMB to join a basket of currencies, known as Special Drawing Rights (SDRs).

The IMF has yet to issue a statement on the matter, but with introduction of CIPS, the RMB has already jumped to the major leagues.

Tmcgregorchina@yahoo.com

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.


 
 

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