New RMB system in the works
The newspaper said the decision was made after technical feasibility studies with commercial lenders, citing an anonymous source in charge of the business.
"The system, namely China International Payment System, or CIPS for short, will be researched and developed on basis of a modernized payment system," said the newspaper.
"The current payment system is relatively poor in terms of efficiency, security and stability, because much of the processing must be done manually, and that's where the new system will try to make improvements," a senior official in charge of cross-border yuan business at the central bank told China Daily on Friday.
China must have a more advanced and efficient payment system for banks to clear renminbi-denominated trade settlements if it wants to float its currency globally, said Wang Xiaowei, executive director of the Royal Bank of Scotland (China) Co Ltd.
And the system should be compatible with the international messaging service adopted by the Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT, he added.
The central bank official said the new system will be compatible with SWIFT, but its implementation may take years from the current research phase.
While demand for cross-border renminbi settlement rises, the weakness of the current payment system has loomed large because transaction costs are much higher than those conducted in other major currencies such as the US dollar, said analysts.
A new system would facilitate cross-border trade settlements in the renminbi and further boost the global profile of the Chinese currency, said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.
"We hope to improve the international payment system to at least the same level as the national payment system, which is much more mature," said the official.
The central bank is also updating its national payment system, known as the China National Advanced Payment System, or CNAPS, to make the processing of domestic renminbi payments more efficient among banks.
Sources at commercial lenders told China Daily that the second-generation CNAPS system will replace the current version in October, with the upgrading of the electronic commercial draft system and improvements in real-time foreign exchange transactions.
The payment system will enable instant inter-bank clearing nationwide and real-time inter-bank bond transactions.
"Given that the domestic system has taken more than 10 years to develop into its current state, we can't expect the new international renminbi payment system to take effect very soon," said the central bank official.
By the end of 2011, China had conducted cross-border renminbi trade settlements valued at 2.58 trillion yuan (410 billion U.S. dollars), accounting for nearly 10 percent of the country's total trade.
And overseas direct investment settled in renminbi reached 20.15 billion yuan, while foreign direct investment was 90.72 billion yuan, according to statistics from the central bank.
The World Bank said last month that China's growing role in global trade, the size of its economy and its role as the world's largest creditor mean that the renminbi's internationalization is "inevitable".
But acceptance of the renminbi as a major global reserve currency will depend on the pace and success of financial sector reforms and the opening of China's external capital accounts, it said.
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