China's cross-border yuan payment system is improving its security and messaging standards in an attempt to become a mainstream platform for clearing and settling cross-border yuan payment.
Widely known as CIPS, the system currently processes cross-border renminbi payments for trade, direct investment, financing and personal remittance. Prior to the launch of CIPS last year, most such payments were processed either through designated offshore clearing banks or correspondent banks.
While CIPS has proven more efficient, the volume of payments it handles trails other channels due to its functional limits. For example, current operating hours leave the Americas uncovered.
Li Wei, executive director of China International Payment Service Corp.which operates CIPS, said on Friday that the payment system is working with SWIFT to make MT messaging standards, widely used in cross-border banking transactions, compatible with the ISO20022 standards used by CIPS, through a conversion scheme.
CIPS had 19 directly participating banks and another 176 banks indirectly involved when it was launched in October. Indirect participants have grown to 253 since then, but the increase is small when compared with overall growth of the Chinese currency in global payments, according to Zhang Xin, general manager of CIPS.
Another dozen banks are expected to become direct participants by the end of this year and the system will be connected to the bond and foreign exchange markets. An extension of operating hours to handle transactions with the Americas is under consideration.
To ensure secure operation on CIPS, SWIFT is also working with banks engaged in cross-border payments to improve automated processing and reduce operational risks, according to Daphne Huang, SWIFT head in China.
CIPS is also building a back-up system to ensure smooth operations in case of transactions in Shanghai being unexpectedly disrupted.
Li expects CIPS to evolve into a more secure and efficient system with expanded time zone coverage and take a greater share in handling cross-border yuan payments, though offshore clearing banks and correspondent banks will continue to be used.
