Night and Day Services

Following a raft of measures taken by China to promote the international use of its cur- rency, a further improvement to its global yuan payment platform, Cross-Border Interbank Payment System (CIPS), was recently unveiled, which makes trading via the platform safer, easier and smoother.

In October 2015, the People’s Bank of China (PBC) formally launched CIPS Phase I, which increased the effi ciency of cross-bor- der clearing and settlement. It marked major progress in the establishment of a modern payment system that combines domestic and international yuan payment.

As steady progress in the international- ization of the renminbi continues, the use of the Chinese currency has become more extensive worldwide, and there is a growing demand for cross-border renminbi clearing and settlement as well as more complete financial infrastructure to consolidate the currency’s global usage. In respond to this demand, the PBC made another stride for- ward by launching CIPS Phase II, which has significantly expanded the service’s func- tions.

According to statistics from the China International Payment Service Corporation, the operator of CIPS, on May 2, the fi rst day that the new phase of CIPS was put into use, the platform handled transactions worth 107.6 billion yuan ($16.9 billion), of which 73.52 billion yuan ($11.56 billion) was traded during the day and 34.08 billion yuan ($5.36 billion) during the night, with the entire sys- tem running smoothly.

Upgraded functions

The Phase II version operates for 24 hours each working day, compared with just 12 hours previously. Given the time differences between markets, the system runs for an extra four hours each week in order to cover the entire global fi nancial market.

Considering that the business hours of financial markets in the United States and Europe are the inverse of those in China, the PBC decided to extend the working hours of the renminbi payment platform into the night in an effort to fulfi ll the needs of domestic and foreign direct participators for coordinating liquidity to ensure smooth clearing and settlement.

Besides that, to meet the diversified demand for cross-border yuan payment and settlement and support the development of e-commerce, the platform has added deferred net settlement (DNS) to the former real-time gross settlement (RTGS) model. In other words, all direct users of CIPS Phase II can initiate RTGS, and users that meet the requirements for prudent management and do not violate related regulations can access DNS.

The RTGS model fits immediate, large- sum payment transactions, while the DNS model is more often used in frequent, small- sum transactions, according to the PBC. To prevent and control related risks, CIPS Phase II has outlined clear admittance crite- ria, trading limits and the requirements for settlement deposit and priority.

The system has also expanded the scope of direct users allowed to trade on the platform by admitting players engaged in financial infrastructure. It has adapted its business model not just to international standards but also to the demand of further expansion by supporting the settlements of various financial market operations. It has also made preparations for the introduction of qualifi ed foreign institutions. “CIPS serves as an ‘expressway’ for the internationalization of the yuan,” said the PBC.

Greater appeal

By the end of March, CIPS had 31 direct users and 695 indirect users in China and overseas, with its business reaching 148 countries and regions.

“In the future, CIPS will continue to improve its services to secure the global ap- plication of the yuan and interconnection among fi nancial markets, further fulfi lling the demands of yuan internationalization,” said the PBC.

“Expanding the working hours of CIPS can better serve foreign yuan users. Since the trial operation of Phase II began, many customers in countries such as the United States and Canada have actively conducted cross-border receipt and payment through CIPS nighttime services,” said Zhu Jiadong, general manager of the global payment management department of the Hong Kong Shanghai Banking Corp., told 21st Century Business Herald.

“When CIPS Phase I was launched three years ago, many direct users were provided with access to a special line for their settle- ments, which saved e-commerce enterprises and individuals considerable costs. With Phase II introducing the DNS model, they can now make frequent, small-sum pay- ments at a designated time,” said Zhang Haizheng, general manager of StarMerx, a Shenzhen-based cross-border e-commerce enterprise.

The complementary nature of RTGS and DNS further optimizes clearing and settlement and diversifi es forms of liquidity, which provides more convenience for companies and individuals in the e-business trade, said Zhang.

The upgrading of CIPS means more extensive and efficient use of renminbi in the clearing and settlement of global trade, which is the underpinning for the renminbi to acquire the pricing power of internation- ally tradable fi nancial assets and products in the future, said Chen Peng, secretary gen- eral of the Qianhai Institute for Innovative Research, in an interview with 21st Century Business Herald.

“In the long term, the new system will allow the yuan to further elevate its position in the clearing and settlement of global trade and have a say in the formulation of new in- ternational economic and trade rules in years to come,” Chen said.