China's markets re-opened after the extended
national holiday today. Policymakers hit the ground running with two
new initiatives. The initiatives are likely driven by China's own reform efforts,
but they will also enhance the likelihood that the yuan is included in the
SDR.
The first initiative is the launch of its own
payment system for cross-border yuan transactions. It is aptly called
China International Payment System (CIPS), and it will provide yuan clearing
and settlement services. An estimated 19 banks are participating
initially as direct participants, including affiliates of at least three
non-Chinese banks. Another 38 Chinese banks and nearly 140 foreign
financial institutions have been approved as "indirect participants',
meaning they have access to CIPS services through a direct participant.
CIPS will operate from 9 am to 8 pm in
Beijing. This suggests it is aimed at primarily the regional
market. There are of course other payment systems. According to
Bloomberg, the real-time yuan settlement platform in Hong Kong (active from
8:30 am to 5:00 am the next day), processed CNY21.8 trillion (~$3.4 trillion)
of transactions in August. This was a record.
It is possible that the launching of CIPS
causes greater fragmentation in that space, but over time, it could also take
market share. Reports suggest it may reduce costs and
processing times compared with alternatives. CIPS is consistent with
China's efforts to bolster the yuan's profile and to enhance its ability to
meet the IMF's vague criteria of "freely usable".
The second initiative is more subtle. China
took another step toward adopting the IMF's best practices. The idea is
that if China is to have the status of being a member of the SDR, it ought to
show that it is a "good citizen" by adopting meeting the highest
standards or IMF practices. As an example, recall that recently China has
begun reporting the composition of its currency reserves.
The new initiative is that China will conform
to the IMF's Special Data Dissemination Standards (SDDS). It is a
statistical system that will improve transparency. China joined the WTO
in late 2001, and since 2002 it has used the IMF's General Data Dissemination
System (GDDS). This was a framework for countries to improve their
statistical systems. The GDDS is applicable to all IMF members.
The SDDS is for members that have or are seeking international
markets.
The SDDS was developed in the mid-1990s to
help countries produce regular economic and financial statistics. It
enhances the availability of timely and reliable economic and financial
statistics. SDDS emphasizes data coverage, periodicity, timeliness,
accessibility, integrity and quality of the data.
China promised a year ago to switch to
SDDS. During this time, reports suggest China's National Bureau of
Statistics, the Finance Ministry, and the central bank have been working to
meet the SDDS requirements. The US, and, of course, the
IMF, welcomed the adoption by China.
Two Initiatives from China
Reviewed by Marc Chandler
on
October 08, 2015
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