Showing posts with label SWIFT RMB Tracker. Show all posts
Showing posts with label SWIFT RMB Tracker. Show all posts

Thursday 13 August 2020

Update on CIPS China – Impressive Progress But .

 

Back some four years ago there was a great deal of ideologically-driven hysteria from the usual sources that the creation of China’s Cross-Border Interbank Payment System (CIPS) sounded the death knell for the US dollar.

I wrote a post then that “put a finger in that optic”.

Four years later it’s time for an update.

Summary

CIPS has come a long way since 2015, but still lags US dollar cross-border payment systems. Also it lags the existing cross border RMB payment system CHATS in Hong Kong, as a forthcoming post will demonstrate.

Analysis

From 2016 through 2019 CIPS has grown remarkably both in terms of value (648%) and number (678%) of transactions.




In 1Q2020, CIPS processed 444,000 payments equivalent to US$ 1.37 trillion. It seems poised to post a 12% increase over 2019.

Over its “life” there has been an equally impressive growth in number of participants.

There are two types of participants: Direct and Indirect.

What is a Direct Participant (DP)?

It is a bank located with Mainland China that has an account with CIPS and the Chinese National Payment System (CNAPS) aka HVPS. Think of HVPS as the Chinese equivalent of the US Fedwire. These are the only banks that may directly input payments into and receive payments the CIPS system.

The DPs include foreign owned banks in the PRC. These are called "FMIs" in the CIPS “literature”

What is an Indirect Participant (IDP)?

It is a bank located in Mainland China or overseas that has a correspondent account with one of more of the Direct Participants. Note that an IDP is not restricted to working with a single DP.

The IDP sends its payment orders to its Direct Participant correspondent for input into CIPS. The DP sends the payment order into CIPS, the DP's account with CIPS is debited for the payment.  The DP debits the IDP's account on its books. 

Any CIPS credits in favor of the IDP are credited to the DP's account with CIPS. The DP then credits the account of the IDP on its books. In this respect this is a mirror of CHIPS in New York City.

What are the benefits of CIPS?

  1. CNAPS/HVPS operates in the Chinese language only. CIPS allows a bank to send in an English language instruction which CIPS then “translates” into Chinese.
  2. It speeds up payments. CIPS participants send their payments direct to a DP in the PRC. They do not have to work through a bank in their time zone that first processes their payment, then relays it to one or more banks for payment in the PRC.
  3. CIPS is open 24 hours five days a week plus an additional four hours providing coverage in all time zones.
As of 31 December 2015, CIPS had 19 Direct Participant Banks and 185 Indirect Participant Banks with 50 countries in the world covered according to the Peoples Bank of China “2015 China Payment System Development Report” page 116.

As of 31 July 2020, CIPS has 33 Direct Participants (list here).and some 951 Indirect Participants in 97 countries, according to CIPS Participants’ Announcement #55

Among the Indirect Participants were 421 banks in Mainland China, 310 in the rest of Asia, 124 in Europe 37 in Africa, 26 in North America, 18 in Oceania, and 15 in South America, according to the same CIPS information.

Again an impressive change from its beginnings in October 2015.

If you’re interested in following this topic or checking AA’s math, data on CIPS performance is available in PBC quarterly and annual payment reports. You can access them here

Growth is very impressive. Trillions of US Dollars in payments per year sounds very impressive.

But let’s take a look at comparatives.

Based in New York, CHIPS bills itself as the “largest private sector USD clearing system in the world”. A claim supported by the average daily value of the transactions it processes.

CHIPS says that it processes some USD 1.5 trillion per day.

According to the BIS CPMI Payment Statistics for 2018, that would seem to be an understatement. Dividing the aggregate amount shown there (USD 418 trillion) by 252, the average is more like USD 1.7 trillion per working day.

Whatever the amount CHIPS processes the equivalent of CIPS yearly volumes in roughly 3 business days.

Per the same CPMI report (Table 8), CHIPS processed 115 million messages in 2018 or 82 times the messages processed by CIPS.

CIPS has made remarkable progress but still lags in US Dollar cross-border payments. And lags the HK RMB CHATS payment system.

That is not surprising.

It is relatively “early days” for the RMB as a global currency.

CIPS is a "youngster" compared to HK RMB CHATS –founded in 2007.

The US Dollar, Euro, and Sterling still dominate cross-border financial transactions with roughly a 75% to 77% share of all payment orders transmitted through SWIFT.

(SWIFT does not process payments but is a secure communication service for the transmission of financial information).

Per SWIFT the RMB generally has around a 2% share in global cross-border payment traffic.

You can see the statistics here in SWIFT’s RMB Tracker for July.

Sign up for the RMB Tracker here.

Wednesday 7 September 2016

SWIFT RMB Tracker August 2016 Issue - Further Thoughts on the Increase in RMB Usage in South Africa




SWIFT issues an excellent free monthly publication on use of the RMB in payments outside the PRC:  RMB Tracker.   As part of tracking RMB usage, RMB Tracker provides a monthly value-based comparison of the top twenty currencies so even if you're not interested in RMB usage you can track the fate of other currencies. 

You can either sign up for a monthly email or browse issues at SWIFT’s website.


The report is based on customer and bank payment orders (SWIFT MT Series 100 and 200 instructions).  SWIFT, of course, isn’t the only messaging system that financial institutions use.  However, it is widely used—probably the most widely used method for sending payment orders.  Thus, the report should give a very good indication—though more directional than precisely locational—about changes in the use of the RMB.  

The August issue focused on the Republic of South Africa (RSA).  Immediately below are extracts from the August RMB Tracker.  I've used boldface to highlight key points as well as the comments I will focus on. 

"Brussels, 24 August 2016 – SWIFT data shows that Renminbi (RMB) usage in payments in South Africa increased by 65% over the last 12 months and by 112% in the last two years, moving the country from position #30 in July 2014, to #24 in July 2016. Excluding domestic traffic, RMB payment messages increased in volume by 70% in the last 12 months. In addition, nearly 40% of RMB payments by South African institutions have been offshore payments exchanged with countries other than China and Hong Kong, compared to 16% in July 2015."

 “South Africa has experienced a major shift in RMB growth over the last two years, strengthening the country’s trade relations with China and Hong Kong,” says Harry Newman, Head of Banking, SWIFT. “The establishment of an RMB clearing centre in South Africa in July 2015, as well as Singapore’s increased use of the RMB for payments with South Africa, have been a catalyst for RMB growth in the region.”

A couple of things caught my eye.

But before I begin a technical note:  SWIFT’s analysis on the RSA is based on the change in the number (not value) of RMB payments to/from the RSA.  (Page 2).   The number of transactions is one way to measure adoption of the RMB for transactions.  However, I’d prefer analysis based on value, assuming both weren’t available.   If the volume increase is being driven by a large number of small value payments that would put a different spin on the increase figures than if the increase in number were closely tracking value.  


Why doesn’t SWIFT provide this?  They have the data.  In addition to the (free) RMB Tracker, SWIFT have a paid subscription sister publication and  presumably aren’t going to cannibalize its appeal by providing more information in Tracker.

As you read what follows, bear in mind that the lack of information on aggregate payment value constrains the analysis that follows.

Now to my comments.


As written, the report could be read to imply that South Africa has dramatically increased its RMB denominated transactions.   This is not strictly speaking the case.  Since the PBOC’s appointment of Bank of China’s Jo’burg branch (hereafter BOCJ) as the RMB clearing bank in RSA, BOCJ has marketed RMB correspondent banking services elsewhere in Africa.  The increase in volume reflects transactions from other African countries, not just the RSA.

We can find details of this activity in a February 2016 article by Yu Meng in The Peoples' Daily Online and which the South African China Economic and Trade Association relayed on its website.  I’ve highlighted the relevant portions in red and added some comments of my own in boldface blue.

"According to Bank of China, in the "first ten months of 2015, the Renminbi trade settlement and investment amount in and out of Africa (AA: that is, not just RSA) has grown 35% to 126.6 bn yuan (R254 bn).  Half the amount is facilitated by Bank of China’s Johannesburg branch (AA: Here we have a USD equivalent number.  Note BOCJ handles one-half of the aggregate value amount for Africa not just RSA) , which was authorized in July 2015 by China’s central bank, the People’s Bank of China, to serve as the clearing bank for Renminbi business, the first in Africa."

"At the moment, the Johannesburg Branch’s Renminbi service has reached more than 30 African countries, and opened 69 Renminbi clearing accounts for financial institutions in Africa."

(AA:  While we don’t have the volume of these non-RSA transactions nor the amounts, they could well account for a significant portion of the RMB payments attributed to RSA by SWIFT).

"Li, executive vice president of the Johannesburg branch, oversaw a 2.7 bn yuan (R6.08 bn) transaction on Nov 30th for a Mauritian client — the bank’s biggest single clearing deal in Africa. “We wouldn’t have even imagined a transaction in Renminbi this big last year and because of the PBoC’s authorization we expect to do more,” says Li."


(AA:  The wording is ambiguous.  It’s not clear if this was an outgoing or incoming payment.  In either case, it seems a rather large amount for single commercial transaction especially given the amount and nature of bilateral trade between the two countries. Mauritius annually imports roughly US$1 billion equivalent from the PRC – making this single payment over 40% of annual imports. 

The PRC is not among Mauritius five largest export markets.  RSA is in fifth place and annual exports are roughly US$200 million equivalent so it’s unlikely this was an incoming payment for Mauritian goods.   


Given that and the fact that Mauritius is an offshore financial center,  AA suspects that this transaction was financial not commercial.  This was a relatively large RMB transaction—apparently the largest or one of the largest in Africa.  If it is an outgoing payment, its origin may not be Mauritius.  If it is incoming ,its final destination may not be Mauritius.  


Given reports of Chinese parties engaging in “gray” cross-border transactions (AA’s euphemism of the post), AA imagines that a lot of parties might have an interest in finding out more details, particularly if this were a repeating transaction.

Second, Singapore’s increase in RMB payments to the RSA is also interesting. 

If they are trade related, that would imply that the RSA has either redenominated invoicing on existing trade or has "new" trade conducted in RMB.  If so, I’d expect that that pattern would be evident in RSA trade with other countries.  That’s based on the assumption that if the RSA is moving to a greater use of the RMB in its trade, it would be doing so with more than one country. 

That doesn’t have to be the case of course.  Perhaps, there was a unique opportunity to increase sales with Singaporean entities.  As well, the information SWIFT has provided on the increase is based on number of payments not value. 

Assuming that value is tracking to some extent the number of payments (again this need not be the case), as above, I suspect that transactions are financial not commercial.  Perhaps, BOCJ is obtaining RMB for its operations from Singapore via for example FX transactions. While ICBC Singapore is the PBOC-designated RMB clearing bank (in Singapore) and not BOC Singapore, Singapore has some 110 or so banks.  Besides local banks that are active in the RMB, the country has a variety of foreign banks including banks from the PRC (BOC has a full branch) and from Hong Kong SAR who likely have RMB-denominated business and could serve as counterparties.