China to Upgrade CNAPS for Cross-Border Trade

In its ongoing efforts to promote the use of the Chinese yuan as a cross-border trading currency, the People’s Bank of China has revealed that it is in the process of upgrading its National Advanced Payment System, commonly referred to as CNAPS. Currently automated cross-border payments take place using major international currencies, primarily US dollars, with payments in yuan requiring a level of human intervention which increases transaction fees. In order for the yuan to be used efficiently as an international trade currency, processing fees need to be reduced and document flow needs to be streamlined.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) facilitates the exchange of messages between banks and financial institutions on a global scale and is an essential feature of cross-border payments. Head of Asia-Pacific markets for SWIFT, Patrick de Courcy, noted that in order for banks to handle increased volumes of yuan transactions, processing costs need to be reduced. He also noted that China’s central bank, the People’s Bank of China, has agreed to use SWIFT’s messaging standards supporting electronic payments. The current method of payment requires that the Chinese trader’s name be converted to a four-digit code in order to make use of the SWIFT service, after which it must revert to Chinese for processing. By complying with SWIFT processes, this labor-intensive method of payment will be largely automated, cutting time and costs.

Since initiating cross-border trade payments in yuan around two years ago, there has been a growing demand for payment in China’s currency. This method of payment now accounts for around 10 percent of the country’s total trade, compared to less than 1 percent at the beginning of 2010. Deutsche Bourse analysts believe that trade in yuan is likely to reach 15 percent of China’s total trade for 2012, amounting to 3.7 trillion yuan.

Confirming that there is a demand for cross-border trade to move away from the US dollar, it was recently reported that Sudan is negotiating with China to use Chinese yuan and Sudanese pounds in future trading transactions. China is a significant investor in Sudan’s oil sector, with 2011 bi-lateral trade reaching US$10 billion.