Central bank chief says cross-border yuan settlement system to launch in Shanghai soon

Zhou Xiaochuan says system’s aim is to support yuan internationalisation, and construction projects along the Belt and Road

PUBLISHED : Tuesday, 20 June, 2017, 2:55pm
UPDATED : Tuesday, 20 June, 2017, 10:53pm

China’s central bank governor Zhou Xiaochuan says a cross-border yuan settlement system will soon be launched in Shanghai, in a renewed effort to bolster the local currency’s internationalisation drive and reinforce city’s bid to become a global financial centre.

The China International Payment System, known as CIPS, has been more than five years in the making by the People’s Bank of China, which reflected Beijing’s ambitions of creating a unified network for settling deals in yuan.

The CIPS could also help Shanghai vie for the role of a global yuan settlement and clearing centre.

“In order to push the further development of Shanghai into an international financial centre, the China International Payment System will be established in Shanghai in the near future,” Zhou told the Lujiazui Forum on Tuesday.

“It will aim at supporting the internationalisation of renminbi and the constructions projects along the Belt & Road Initiative trade routes.”

The Belt and Road was introduced by Chinese President Xi Jinping in 2013 as an economic blueprint to improve infrastructure across 65 countries along the old two Silk Road trading routes.

“CIPs will be an important part of the Belt and Road strategy, since efficient settlement and clearing services will be much needed to facilitate investment and trade deals along the routes,” said Orient Securities chief economist Shao Yu.

“As China remains determined to internationalise yuan, a unified yuan settlement system should be created sooner rather than later.”

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The long-heralded CIPS was expected to make its official debut in 2014, but was delayed due to technical problems.

The system will allow large international companies to settle payments with Chinese business partners in a faster and more efficient way, replacing a current patchwork of networks such as Chinese clearing banks scattered across the world.

Zhou did not elaborate on the exact time frame for the launch of the system, neither did he mention any operational details.

There had been speculation the central bank would include capital-related transactions in the settlement system, allowing it to settle securities purchases, for instance, and foreign direct investment deals.

But the stock market crash of mid-2015 stopped the plans in their tracks, as mainland financial authorities pulled back from drastically liberalising the monetary and capital markets.

Zhou’s announcement come as Beijing has been seen tightening controls on cross-border capital flows since last year amid increasing pressure on a depreciating yuan.

The foreign-exchange regulator has rolled out a series of stringent rules since late 2016, seriously denting outbound investment projects and cross-border transactions, to stave off capital outflows.

But in an apparent effort to shake off the gloomy sentiment about the slow progress in reforming the mainland’s financial markets, Zhou looks to have reiterated that more liberalisations and opening-up policies are now in the pipeline, without providing further details.

Shanghai is striving to become a global financial hub by 2020 despite the yuan yet to be fully convertible under the capital account.