The system will be located in Shanghai and will facilitate cross-border trade settlement, direct investment, and other RMB-denominated deals. This will reduce transactional costs for RMB clearing and make such transactions easier. The international payment system is expected to expand internationalization of the RMB as China continues down the long path of market-oriented reforms.
China currently uses the China National Payment System (CNAPS), with a 2014 settlement amount of 6.55 trillion RMB, according to the People’s Bank of China. The transition to CIPS will better allow use of both Chinese and English and will run on SWIFT ISO20022 standards, consolidating a system of multiple clearing houses. The system is currently being tested among 20 banks and will be rolled out to other banks in the fall. Cross-border use of RMB is expected to rise as it becomes easier to engage in foreign currency transactions.
Improving the ability to conduct international RMB transactions is an essential component of China’s capital account and exchange rate liberalization process, as well as of its “Going Out” policy and the One Belt, One Road initiative. Under the Third Plenary Session of the 18th Communist Party Congress, China committed to further opening up its capital account and increasing exchange rate liberalization. This will allow transactions to be further carried out in RMB and to somewhat loosen the rate at which the RMB is internationally traded. The One Belt One Road initiative aims to expand the scope and scale of the bilateral currency swap and settlement.More in the Diplomat.
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