China will start a cross-border payment system for the yuan by the end of the year as it seeks to promote its global use.
The first phase of the China International Payment System will begin in Shanghai to handle deals in Asia, Oceania and Europe, the People's Bank of China said in its yuan internationalization report published on Thursday. CIPS will run from 9 a.m. to 8 p.m. local time and facilitate cross-border trade settlement, direct investments and other yuan deals, according to the report.
China is drumming up efforts to boost the yuan's global use as it seeks to have it added to the International Monetary Fund's Special Drawing Rights basket of currencies that already includes the dollar, euro, yen and pound. The PBOC has appointed yuan-clearing lenders in 11 cities including Seoul, Sydney, Kuala Lumpur and Bangkok in the past year.
"The launch of CIPS is a vital step for the yuan's internationalization," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "The system will increase the efficiency and reduce the costs for banks that settle the yuan, as it will erase the time and technical barriers among banks across the world."
China will "actively encourage" foreign central banks to include yuan-denominated assets in their foreign-exchange reserves and it may scrap limits on how much onshore yuan bonds they can buy, PBOC said in the report.
The IMF's mission to China said in preliminary findings released on May 26 that the yuan is no longer undervalued, and that it will work with Chinese authorities toward its inclusion in the SDR in an October review. The currency has become Asia's most-active for payments to China and Hong Kong, according to the Society for Worldwide Interbank Financial Telecommunications.