The China International Payment System (CIPS), which is designed to remove the obstacles to internationalisation of the Chinese currency, the yuan, will roll out in a few months with a new dedicated platform for cross-border RMB payments.
CIPS will replace a complex network for clearing transactions which uses platforms such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the China's owl local RTGS system, the CNAPS, says a Reuters report.
A dedicated platform will increase the worldwide use of the Chinese currency by reducing transaction costs and processing time, as it will enable customers outside China to clear yuan transactions with their Chinese counterparts directly.
CIPS is expected to process RMB payments across different time-zones while also offering better clearing security and building robust system for current clearing participating members.
"The CIPS is ready now and China has selected 20 banks to do the testing, among which 13 banks are Chinese banks and the rest are subsidiaries of foreign banks," Reuters quoted a senior banking official as saying. "The official launch will be in September or October, depending on the results of the testings and preparation," the official added.
Cross-border yuan clearing is currently done through one of the yuan clearing banks in cooperation with a correspondent bank in mainland China.
The People's Bank of China, the country's central bank, had last year assigned ten new official yuan clearing banks to a total of 14 that are authorised to clear yuan transactions.
In November 2014, China's yuan became one of the world's top five mostly used currencies overtaking the Canadian dollar and the Australian dollar, according to SWIFT.
With China's international trade growing exponentially over the last few years and the country emerging as the largest trading partner of the United States, it has become inevitable for China to let RMB grow as internationally accepted currency.
The setting up of an international clearing standard and processes will further lead to RMB growth as a competitive currency against dollar, the euro and the British pound.
The introduction of the CIPS system is a huge positive for the development of the offshore renminbi market. CIPS is expected to take around two years to commence and will address a number of challenges to doing cross-border trades with Chinese onshore entities.