Payment system of China gains ground in Africa and Asia during US trade conflict
Accelerating the Global Presence of the Yuan
China is revving up its endeavors to popularize its currency, the yuan, on a global scale, amid escalating tensions with the United States. The Chinese government is pulling out all the stops to lessen dependence on the US dollar and establish a multilayered currency system.
On a recent Shanghai ceremony, a set of six financial entities officially joined the yuan-based Cross-border Interbank Payment System (CIPS), marking their roles as direct participants in China's alternative to the Society for Worldwide Interbank Financial Telecommunication (Swift) system. The lineup includes the African Export-Import Bank, First Abu Dhabi Bank, Standard Bank of South Africa, United Overseas Bank from Singapore, Eldik Bank of Kyrgyzstan, and Chongwa (Macau) Financial Asset Exchange, a state-owned asset trading platform based in the special administrative region.
China's cross-border yuan payment system now counts 174 direct participants, primarily consisting of domestic and overseas branches of Chinese banks, as well as Chinese branches of international banking titans like HSBC, JP Morgan, and Citibank. Direct participants own a CIPS account and can transact directly through the system, while indirect participants depend on others to complete transactions on their behalf.
To boost the yuan's global currency status, China has several strategic initiatives in the works. These include the rise of the digital yuan (e-CNY), the establishment of international operation centers, and the growth of cross-border RMB payments made possible by novel financial infrastructure.
One of China's central objectives is to envision a global financial system bolstered by multiple dominant currencies, aiming to dilute the hegemony of the US dollar and euro. This vision involves promoting the yuan as a credible and competitive alternative currency for international transactions and finance.
In addition to the CIPS, the Chinese government is pushing the digital yuan globally, with a dedicated operation center in Shanghai helping promote the e-CNY's international use. The digital currency aims to enhance efficiency, reduce transaction costs, and offer a secure alternative to conventional cross-border payment systems susceptible to geopolitical risks and unilateral sanctions.
China is also strengthening its trading and investment partnerships with over 30 countries through currency swap agreements that facilitate RMB trade and investment settlements. This initiative bolsters the alignment between domestic and foreign currency usage in cross-border transactions.
With China consistently emphasizing the acceptance and utilization of the yuan, it's common to see major international banks and financial institutions, particularly those involved in RMB trade and investment corridors, joining CIPS to streamline yuan settlements smoothly.
- The African Export-Import Bank, First Abu Dhabi Bank, Standard Bank of South Africa, United Overseas Bank from Singapore, Eldik Bank of Kyrgyzstan, and Chongwa (Macau) Financial Asset Exchange have joined China's Cross-border Interbank Payment System (CIPS), indicating a shift towards a more diverse economy that includes the yuan as a significant player in international business and finance.
- China's aim to dilute the hegemony of the US dollar and euro in the global financial system is evident through numerous strategic initiatives, such as the rise of the digital yuan, the establishment of international operation centers, and the growth of cross-border RMB payments facilitated by novel financial infrastructure, all of which contribute to positioning the yuan as a credible and competitive alternative currency for international transactions and finance.
- As China pushes for a global financial system supported by multiple dominant currencies, major international banks and financial institutions are implementing measures to accommodate the yuan, such as joining the CIPS and adopting the digital yuan, thereby fostering the integration of the yuan into global industry, trade, and economy.
