Content area
Full Text
China's cross-border interbank payment system (CIPS), launched on October 8, is revolutionising the way payments are made and received in RMB across the globe. The system is just in its first phase, but as it expands its reach, the role of offshore RMB clearing banks will be called into question.
Market participants are making the case that China made a wise choice to base its new payment system on its dollar counterpart, and not just in name. The US system, called Clearing House Interbank Payments System (CHIPS), which has been running since 1970, has evolved into a pillar of global dollar payment infrastructure, processing daily transactions valued at about $1.2tr and supported by 59 members, including large US banks and US-based branches of foreign financial institutions, according to a document on the Federal Reserve of New York website.
Transaction bankers agree that the Chinese infrastructure has taken the CHIPS model into careful consideration, though some differences remain. Among them, while CHIPS is bank-owned, CIPS is very much controlled by the People's Bank of China.
Above all, the introduction of CIPS creates a direct connection for participating banks into the onshore payment system, called China National Advanced Payment System (CNAPS) that will lead to much needed improvements in payment speed, efficiency and overall rates of straight-through processing (STP).
"The value of CIPS is that it adds a level of efficiency for onshore to offshore payments, it adds risk mitigation too as it creates higher levels of STP, which removes the need for manual intervention," Kee Joo Wong, head of payments and cash management, Asia, HSBC, told GlobalRMB. "You can have more efficiency and faster payments: with STP payments don't drop through. And with CIPS, STP rates go up, we are seeing that already."
At the recent Sibos conference in Singapore, Wanmin Cui, engineer with the development department of the national clearing centre at PBoC, explained in detail some of the key features of the CIPS infrastructure.
The new system allows the 19 participating banks to connect to CIPS via their onshore China branches. In turn, direct participants...