China's yuan global ambition faces payments hurdle

Tue Jul 8, 2014 6:04pm EDT
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By Koh Gui Qing and Saikat Chatterjee

BEIJING/HONG KONG (Reuters) - China's quest to turn its yuan into a full-fledged global currency has hit a road-block as the planned roll-out of a worldwide payments superhighway looks certain to get delayed because of policy snags and technology challenges.

The China International Payments System (CIPS) that would replace a patchwork of networks and allow hassle-free yuan payments was meant to debut later this year, but bankers say it is unlikely to be ready before 2016.

The slippage might be good news for China's big clearing banks such as Bank of China (601988.SS: Quote) (3988.HK: Quote) and offshore centers such as London or Singapore, which now handle most international yuan transactions and stand to lose their privileged position.

In the long run, however, an efficient global network for yuan trades will be essential for fulfilling Beijing's wish to boost the currency's use. A spate of agreements on yuan clearing with financial centers in Europe and Asia signed over the past month or so highlighted the importance of such a system for those ambitions.

Yet government debate over how much users should be allowed to move in a single day without punching too big of a hole in China's capital controls and technological problems have stymied the system's development, bankers say.

"The central bank is telling others that the first batch of CIPS will be used this year, but we think it is unlikely," said a banker at a large Chinese bank. "The earliest will be 2016."

Bankers also worry that the roll-out won't be glitch free, and a poorly-designed system with a high transaction failure rate could put off investors.

The Chinese central bank, which leads the effort and was contacted for this article, said the building of the CIPS network was making steady progress as planned. It added that it attached "great importance" to the system, whose creation was first announced in 2012.   Continued...

A clerk counts Chinese 100 yuan banknotes at a branch of China Construction Bank in Hai'an, Jiangsu province June 10, 2014. REUTERS/China Daily