China aims to tip the balance of economic power to the east (Image source)
The Central Bank of China’s has launched a global payment scheme which will provide facilities for settling cross-border trades in yuan. The China International Payment System (CIPS) signalled its intention to internationalize the yuan and challenge the domination of world trade by the US dollar several years ago.
China is backed in this project by Russia and by emerging economies such as Brazil, India and Nigeria and oil exporting states such as Venezuela whose trade had been restricted by American manipulation of currency and commodity markets.
“The establishment of CIPS is an important step in yuan internationalization, providing the infrastructure that will connect global yuan users through one single system,” Helen Wong, greater China CEO for HSBC, was cited as saying by the Financial Times. The move comes less than a year after China launched its Asian Investment Bank, AIIB to rival the World bank and IMF as a financier of infrastructure projects.
CIPS will accept payments in cross-border trade, direct investments, financing and personal remittances. The system is open for operations 11 hours a day. The first CIPS transaction was completed by Standard Chartered Bank for Sweden's IKEA. Nineteen banks have been authorized to use CIPS; eight of them are Chinese subsidiaries of foreign banks, including Citi, Deutsche Bank, HSBC and ANZ.
Prior to launching CIPS international, transfers in Chinese currency could only be carried out through offshore clearing banks in Hong Kong, Singapore or London. While the procedure was slow and costly, the new system is expected to significantly reduce the cost and time for money transfers.
China is also trying to reduce its reliance on the global transaction services organization SWIFT.
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