New offerings seen as enhancing internationalization efforts, protecting payments from prying eyes.
Despite a devaluation that tripped up the yuan late this summer the currency is still marching toward internationalization. Just this week international payments messaging organization SWIFT announced that the yuan, or RMB, had taken the number-four position as global currency, overtaking the yen.
And also this week, the People’s Bank of China announced two initiatives to further boost the RMB’s prospects. The first initiative was the launch of China’s own payment system for cross-border yuan transactions. Called the China International Payment System (CIPS), the payment system will provide yuan clearing and settlement services. According to reports, an estimated 19 banks are participating initially as “direct participants,” including affiliates of at least three non-Chinese banks. One of those banks is Deutsche Bank, which announced its participation.
“CIPS will improve the efficiency of cross-border clearing to meet the increasing demand for Renminbi worldwide,” said Carl Wegner, Managing Director, Greater China Head of Global Transaction
Banking at Deutsche Bank, in a statement. “CIPS will also enhance and facilitate the security of transactions, thereby benefitting the industry as well as our clients.”
Another 38 Chinese banks and nearly 140 foreign financial institutions have also been approved as “indirect participants,” which means they have access to CIPS services through a direct participant.
The CIPS initiative is also seen as helping China’s efforts to augment its ability to meet the International Monetary Fund’s criteria of “freely usable,” which in turn will help it in its campaign to gain Special Drawing Rights or SDR status from the IMF. The IMF this year conducts its twice-a-decade review of SDR, which is an international reserve asset based on a basket of four major international currencies: the dollar, euro, pound and yen. The IMF will finish its review by the end of the year and there was speculation that based on the growth of the RMB so far, it would be added it to the basket. However, after the devaluation the IMF said it would delay its decision until September 2016.
While China hopes that by replacing the current complicated system for clearing and settling RMB with one that is more streamlined, there’s another more practical goal: according to Financial Times, CIPS is also a way to protect itself from the prying (spying) eyes of the US. In 2013 it was revealed that the NSA has been spying on SWIFT transactions.
China’s second initiative “is more subtle,” according to Marc Chandler at Brown Brothers Harriman, and involves China conforming to the IMF’s Special Data Dissemination Standards (SDDS). SDDS is a statistical system that will improve transparency. This move adopts the IMF’s best practices, Mr. Chandler said in a note to investors, and shows that China is being a “good citizen” by “adopting the highest standards or IMF practices.” As an example, Mr. Chandler said, China recently began “reporting the composition of its currency reserves.” This is also an attempt to gain access to the SDR, according to Mr. Chandler.