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China's Premier Li Keqiang said at the World Economic Forum in Dalian last week that CIPS would be ready by the end of the year. Photo: Reuters

New | China's international payment system for yuan could launch next month

China's much anticipated international payment system could be launched as early as next month, undeterred by market turbulence caused by last month's surprise pricing change, three sources said.

The China International Payment System (CIPS), essential infrastructure for encouraging global use of the yuan, will connect the sprawl of offshore clearing centres and smooth out the current bumps in remitting funds between onshore and offshore.

The People's Bank of China is in the last stage of testing the system and the official launch could happen within a month at the soonest, one source said.

"The central bank is going through the final review of readiness," he said.

In a bid to soothe market concerns following the near 2 per cent devaluation of the yuan against the US dollar last month, Premier Li Keqiang said at the World Economic Forum in Dalian last week that CIPS would be ready by the end of the year.

Viewed as a worldwide payment superhighway, the initial phase of CIPS will enable extended cross-border yuan payments beyond China's normal office hours, and also eliminate language barriers.

Cross-border payments now need to go through PBOC-approved Chinese banks, which connect with the China National Advanced Payment System, the domestic funds transfer system that supports messages in Chinese only. However, as international payments use the English-language Swift messaging system, manual translation can be involved and adds to costs.

The expanding list of offshore clearing centres in Europe, the Middle East and North America also means the current cumbersome process will soon struggle to meet growing demand for quick transactions.

The mini-reform of the yuan fixing last month ramped up pressure on the currency to depreciate, at a time when the euro and yen have fallen drastically, along with the currencies in most Southeast Asian and South Asian economies, China's rivals as exporters of goods.

The central bank has been defending the yuan from falling, selling foreign exchange reserves at a record pace to keep the currency at a firm level.

However, the imminent launch of CIPS means groundwork has not faced any setbacks from the devaluation.

"The devaluation didn't lead to any setbacks on the preparation work. We don't anticipate any delays," another source said.

ANZ senior economist Raymond Yeung said the official launch of CIPS would show the authorities' determination in driving yuan liberalisation.

"It will be a milestone event in the internationalisation of the yuan, and lends significant support to cross-border fund flows," he said.

This article appeared in the South China Morning Post print edition as: Yuan payment system could launch next month
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