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Wednesday, March 11, 2015

Reuters: Chinese International Payments System to Launch by Late 2015

Reuters runs this article explaining that a new international payments system in China should be ready to launch by late 2015. This system is designed to increase the use of the Yuan in international trade. As we have noted here, this is just another big step by China to meet the requirements of the IMF for inclusion of the Yuan in the SDR currency basket later this year. Below a few quotes from this Reuters article and then a few comments.

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"China's long-awaited international payment system to process cross-borderyuan transactions is ready, and may be launched as early as September or October, three sources with direct knowledge of the matter told Reuters.
The launch of the China International Payment System (CIPS) will remove one of the biggest hurdles to internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times.

It will also put the yuan on a more even footing with other major global currencies like the U.S. dollar, as CIPS is expected to use the same messaging format as other international payment systems, making transactions smoother."
. . . . . 
"The official launch will be in September or October, depending on the results of the testings and preparation, the source said.
A second source with direct knowledge of the matter said authorities want to launch the first phase of CIPS before December.
"If it's all smooth, (the launch) will be in September or October. If there is a need for a bit more time, we are still confident about (rolling it out) before the year-end," said the source, who declined to be named because he is not authorized to speak to the media.
The system was expected to be launched in 2014 but was delayed by technical problems, with most market participants anticipating it would not come on stream before 2016."
. . . . .
"China's yuan became one of the world's top five payment currencies in November 2014, overtaking the Canadian dollar and the Australian dollar, according to global transaction services organization SWIFT.
Global yuan payments increased by 20.3 percent in value in December compared to a year earlier, while the growth for payments across all currencies was 14.9 percent for the same period, SWIFT said.
China has accelerated the pace of yuan internationalization in recent years. The central bank assigned 10 official yuan clearing banks last year, bringing the total number to 14 globally that can clear yuan transactions with China."
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My added comments:
Every time I see articles like this one, I am reminded of all the speculation I see on the internet that China is about to back the Yuan with gold and launch its own separate currency as a global reserve currency. But once again, you see nothing like this coming from Chinese officials. They consistently make it clear that they want to "internationalize" the Yuan, but the stated goal is to get the Yuan included as part of the SDR basket of currencies at the IMF
China is surely buying a lot of gold. China may even want to see some kind of super sovereign global reserve currency some day (as they have talked about at times). China may even feel that some kind of gold backing to that currency would be a good idea in the future. But everything so far indicates they prefer to see that done within the IMF using the SDR as the currency unit. Also, this article in Foreign Affairs in 2012 (which pretty accurately forecasted what is actually happening) points out that China sees the process of expanding the use of the Yuan as a very long term project. There is nothing I have seen that indicates China intends to bypass the IMF and try to setup the Yuan as a separate gold backed reserve currency any time soon. It might be a last resort Plan B type of thing, but does not appear to be what Chinese officials prefer to do.
We will continue to follow it here of course to see how things actually unfold in the years ahead.

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