China: CNY feels like embarking on a global financial transactions overtake

The China International Payment System (CIPS) was already expected in 2014, but got delayed by technical problems which caused many analysts to believe it wouldn’t actually come online before 2016, forexmagnates.com reports. CIPS is also expected to rely on the same messaging protocols as established international payment systems, replacing a number of existing systems. The CIPS is now ready and the Chinese government has selected 20 banks to do the testing, among which 13 are local banks and the rest are local branches of foreign banks. The official launch will reportedly be in September or October, 2015 depending on the results of the testing.

Philippe Gelis, CEO and Co-Founder of Kantox, an FCA regulated FX service provider for SMEs and mid-cap companies, has claimed that CIPS launch will help reshape UK’s business perception of China from the go-to overseas provider of manufactured goods to an effective trading opportunity, the source cites. Successful exporting relies not just on open trade corridors, but on foreign currency exchange rates and risk protection. The ability to make payments in CNY, rather than another currency, brings three key benefits for UK businesses. Firstly, a reduction in cost, as Chinese suppliers will no longer need to include the 3-5% premium that they typically incorporate into their contracts to protect them from foreign exchange risk when receiving payment in currency other than CNY. Secondly, there is a shorter transaction time as it takes, on average, four to six days less to process a CNY payment, compared with USD or EUR.

Finally, the upcoming CIPS will reduce the margins of error by streamlining the payment process and replacing what is currently a patchwork of networks with a newer process. Against this backdrop, businesses should check that they are receiving quotes in CNY as well as in USD, to ensure they are taking advantage of cost savings. They should also check that their foreign exchange provider is able to support CNY transactions and the associated CNAPs codes.