New | CIPS to break Chinese banks' global monopoly over yuan clearing
Launch of the China International Payment System will see roles of Chinese lenders and Hong Kong in global yuan trading diminish in clearing
The launch of the China International Payment System (CIPS), scheduled by the end of the year, is set to break Chinese banks' global monopoly over yuan clearing, experts said on Thursday, with the added benefit that the gap between the yuan's onshore and offshore rate could converge.
However, Raymond Yeung, a senior economist at ANZ, said the transition would not be a smooth process.
"We cannot predict the adoption rate for CIPS," he said. "But if the system can measure up in sophistication against existing global payment systems, the Chinese banks' current monopoly over offshore yuan clearing will break. The Hong Kong yuan clearing bank will see its role fade out. Also, as yuan payments could be sent directly onshore, Hong Kong's relevance in the context of the yuan will drop."
At the World Economic Forum in Dalian on Thursday, Premier Li Keqiang confirmed that CIPS was on track, quashing concerns in the banking community since July that the system might be delayed or become watered down because of technical challenges.
With the launch, international banks will be able to settle onshore with the automated system at all hours.
Yuan banking sources said international central banks such as Banque de France were not shy about letting their suspicions be known when mainland Chinese banks were appointed exclusive clearing banks in the 50-plus yuan hubs. Foreign banks must group their trades and disclose confidential transaction details to the Chinese banks, which have the exclusive link to route the trade back to the China National Payment System (CNAPS).
Bank of China owns nine of the 18 authorised yuan clearing banks worldwide. In the first half of this year, its clearing volume grew 31.6 per cent to reach 148.1 trillion yuan. Its Hong Kong bank runs 60 per cent of global yuan settlement. It clears for 225 banks and 2,000 overseas institutions. Industrial and Commercial Bank of China ranks second, clearing for key offshore hubs such as London and Singapore.