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The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.

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Delayed payments system stalls yuan’s global ambitions

Roll-out of CIPS network won't be ready before 2016 due to technical glitches and policy snags

PUBLISHED : Wednesday, 09 July, 2014, 11:18am
UPDATED : Thursday, 10 July, 2014, 11:43pm
 

China's quest to turn the yuan into a full-fledged global currency has hit a roadblock, as the planned roll-out of a worldwide payments superhighway looks certain to be delayed by policy snags and technology challenges.

The China International Payments System (CIPS) that would replace a patchwork of networks and allow hassle-free yuan payments was meant to debut later this year, but bankers say it is unlikely to be ready before 2016.

The slippage might be good news for China's big clearing banks, such as Bank of China, and offshore yuan centres such as London or Singapore, which stand to lose their privileged position.

In the long run, however, an efficient global network for yuan trades will be essential for fulfilling Beijing's wish to boost the currency's use.

A spate of agreements on yuan clearing with financial centres in Europe and Asia signed over the past month or so highlighted the importance of such a system for those ambitions.

Yet technological problems and government debate over how much users should be allowed to move in a single day without punching too big a hole in China's capital controls have stymied the system's development, bankers say.

"The central bank is telling others that the first batch of CIPS will be used this year, but we think it is unlikely," a banker at a large Chinese bank said. "The earliest will be 2016."

Bankers also worry that the roll-out will not be glitch free, and a poorly designed system with a high transaction failure rate could put off investors.

Counter-intuitive coding for processing transactions, ambiguous regulation, heavy demands for information disclosure and the bureaucracy's poor record in software development are not a good omen for the CIPS, some bankers say.

"It is a big enough project, and they underestimated the complexity of it," said the head of transaction services at a European bank in Hong Kong.

Difficulties caused by failed transactions have made some companies consider reverting to the US dollar in trade deals, foreign bankers and corporate treasurers at multinational companies say.

Yet teething problems aside, few bankers doubt the new international network will eventually become a major long-term alternative to clearing banks and offshore centres.

 


France and Germany lead way in yuan trading

French and German companies are leading among countries outside greater China in use of the yuan, a report said.

London-based lender HSBC Holdings surveyed 1,304 businesses that have ties with mainland China in 11 major economies. Some 26 per cent of French corporates and 23 per cent of German companies now settle trades in the Chinese currency, the highest proportion apart from mainland China, Hong Kong and Taiwan.

"The dominant reason for using it is it facilitates winning more business in China," said Noel Quinn, the head of commercial banking for Asia-Pacific at HSBC.

The Chinese currency surpassed the euro last year as the second most popular in international trade finance. Bloomberg

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