China to build ‘expressway’ for yuan settlement

BEIJING – China’s central bank is building a new system to settle cross-border yuan payments, a key back-office project aimed at facilitating the Chinese currency’s use in international trade and investment.

The China International Payment System, known as CIPS, will be open to banks around the world and be the key infrastructure accommodating international yuan transactions.’There will be growing use of yuan in international trade and investment and this system will serve as an expressway in cross-border (yuan use). We are building it up,’ Li Bo, the head of People’s Bank of China’s department that implements yuan-related policies, told a media briefing on Wednesday.Li said the system itself does not constitute a yuan policy change, but it does help make the currency more convertible.Beijing is boosting the international role of the yuan, although it is not freely convertible under the capital account.China has allowed traders across the country to settle cross-border payments in yuan, and it is encouraging qualified investors to bring offshore yuan back into onshore markets.Cross-border yuan trade settlement has amounted to 2,08 trillion yuan (US$333 billion) in 2011, more than triple that in 2010, central bank data showed. Inbound direct investment in yuan hit 90,7 billion yuan in 2011 shortly after Beijing allowed such investments in October.The new system, which will take one or two years to develop, will partly replace the existing cross-border yuan settlement system that mainly goes via Hong Kong.It will double the daily running time to 17 hours a day, from the current eight hours a day, to allow banks in the Americas, Europe and Africa to participate.Ultimately, the system will support simultaneous settlement of yuan and foreign currency transactions between banks.-Nampa-Reuters