China's global payment system CIPs too costly for most banks - for now

In the first phase of China's new international payments system, banks are taking a cautious approach to the cost of bringing on the technology.

The system, called CIPS, launched last week with 19 banks connected directly to the network. Those banks, nine of which are foreign institutions, are able to clear cross-border yuan payments without using an offshore yuan clearing centre.

The new system should eventually lower the cost of clearing yuan for foreign banks. However, only banks with high volumes of cross-border yuan settlements will be able to justify becoming a direct member, if and when China's regulators allow more foreign banks to link directly with the system.

The initial cost of the technology needed to join CIPS would likely keep many banks from joining, said Ramaswamy Madhavan of Standard Chartered.

"There are some additional costs involved when you are a direct member, but as an indirect member it's free," said Madhavan, speaking on the sidelines at Sibos, a conference in Singapore put on by Swift.

Standard Chartered was one of the nine foreign banks directly linked with CIPS last week. However, the bank does not plan to use the new system to clear yuan between Singapore and the mainland any time soon. For now, it will stick with the 24-hour clearing service that Industrial and Commercial Bank of China offers in Singapore.