New system to ease payments

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China is reported to be improving a payment system that will make it easier for banks to conduct cross-border clearing of yuan-denominated transactions.

Analysts said the move would facilitate cross-border trade settlements in the yuan and further boost the global profile of the Chinese currency.

It could also help the regulator monitor and "block out" inflows of speculative capital through trade settlements, they said.

The People's Bank of China (PBOC) is improving the payment system, known as the China National Advanced Payment System (CNAPS), which will make processing of yuan payments more efficient for banks, the Wall Street Journal reported on Thursday.

Employees at the PBOC contacted by China Daily declined to comment.

But staff at the Bank of China Ltd said that the second-generation CNAPS system would replace the current version in October.

The second-generation system mainly involves an upgrade of the electronic commercial draft system and improvement of real-time transactions of foreign exchange, they said.

They said they weren't aware of any change or improvement in cross-border yuan payments in second-generation CNAPS.

The payment system was launched in 2007, enabling instant inter-bank clearing nationwide and real-time inter-bank bond transactions.

But with growing demand for cross-border yuan transactions, the system has fallen short because of the higher transaction costs of cross-border yuan payments compared with those conducted in other major currencies such as the US dollar.

The costs are higher because much of the processing must be done manually, since CNAPS isn't compatible with the international messaging service adopted by the Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT.

Analysts said that China needs a more advanced and efficient payment system for banks to clear yuan-denominated trade settlements if the nation wants to further boost the global use of its currency.

"The improvement of the yuan-payment system will help boost the rapidly growing cross-border trade settlement in yuan and make the clearing process more efficient for banks," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.

"It will also help the regulator monitor and block out inflows of overseas speculative capital channeled through trade settlements," Guo said.

Yuan-settled trade now accounts for about 10 percent of China's total trade. By the end of November 2011, China had conducted cross-border trade settlements in yuan valued at 2.4 trillion yuan ($381 billion) with 175 countries and regions, according to statistics from the PBOC.

Analysts expect the volume of yuan-settled trade to reach 3.7 trillion yuan in 2012, accounting for 15 percent of China's total trade.

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