* Planned payments network meant to boost global yuan use
* Roll-out likely delayed by tech glitches-bankers
* Central bank says work on system progressing as planned
* Deals on foreign clearing hubs signal global ambitions
By Koh Gui Qing and Saikat Chatterjee
BEIJING/HONG KONG, July 9 China's quest to turn
its yuan into a full-fledged global currency has hit a
road-block as the planned roll-out of a worldwide payments
superhighway looks certain to get delayed because of policy
snags and technology challenges.
The China International Payments System (CIPS) that would
replace a patchwork of networks and allow hassle-free yuan
payments was meant to debut later this year, but bankers say it
is unlikely to be ready before 2016.
The slippage might be good news for China's big clearing
banks such as Bank of China and offshore
centres such as London or Singapore, which now handle most
international yuan transactions and stand to lose their
In the long run, however, an efficient global network for
yuan trades will be essential for fulfilling Beijing's wish to
boost the currency's use. A spate of agreements on yuan clearing
with financial centres in Europe and Asia signed over the past
month or so highlighted the importance of such a system for
Yet government debate over how much users should be allowed
to move in a single day without punching too big of a hole in
China's capital controls and technological problems have stymied
the system's development, bankers say.
"The central bank is telling others that the first batch of
CIPS will be used this year, but we think it is unlikely," said
a banker at a large Chinese bank. "The earliest will be 2016."
Bankers also worry that the roll-out won't be glitch free,
and a poorly-designed system with a high transaction failure
rate could put off investors.
The Chinese central bank, which leads the effort and was
contacted for this article, said the building of the CIPS
network was making steady progress as planned. It added that it
attached "great importance" to the system, whose creation was
first announced in 2012.
Eager to have a currency that matches the clout of its
rising economy, China has made great strides in promoting the
yuan's global use.
It is now the world's seventh most-used currency in goods
and services payments, having climbed from 20th rank in 2013,
according to data from international financial communications
But to attain the dollar's status as the world's reserve
currency, China needs to back its yuan with a quality payment
system. The dollar is supported by two -- the privately-owned
CHIPS system, with an average daily transaction volume of $1.5
trillion and the Federal Reserve's Fedwire handling around $3.5
China's record with building its own payment system is less
Some banks said they were given only six to eight weeks
instead of the customary six months to prepare for an upgrade in
the central-bank run China National Advanced Payment System, or
CNAPS, causing anguish among its users.
Counter-intuitive coding for processing transactions,
ambiguous regulation, heavy demands for information disclosure
and the bureaucracy's poor record in software development are
not a good omen for the CIPS, some bankers say.
"It is a big enough project and they underestimated the
complexity of it," said the head of transaction services at a
European bank in Hong Kong who declined to be named due to the
sensitivity of the subject.
Troubles caused by failed transactions have made some
companies consider reverting to the dollar in trade deals,
foreign bankers and corporate treasurers at multinational
One foreign finance executive, who spoke on condition of
anonymity, estimated that a yuan clearing transaction is
two-and-a-half times more likely to fail than a dollar deal.
Yet teething problems aside, few bankers doubt the new
international network will eventually become a major long-term
alternative to clearing banks and offshore centres.
Having used granting foreign cities rights to host Chinese
clearing banks as a part of its diplomacy, Beijing is playing
down such a scenario in public.
Last week, for instance, China and South Korea leaders
agreed in Seoul on steps to create a yuan clearing system as
part of efforts to strengthen commercial and diplomatic
Chinese bankers say the central bank is trying to assure
them that the planned global network will not dent their
renminbi business. In private, however, regulators are blunt.
"There will be no need for clearing banks in the future,"
said an official with a Chinese regulator who declined to be
named as he is not authorised to speak to the media. When asked
if offshore yuan clearing centres would also become obsolete
once CIPS goes live, he said the new system will provide
"alternative channels" for yuan payments.
Robert Minikin, head of Asia foreign exchange strategy at
the Standard Chartered Bank in Hong Kong, says granting clearing
rights for offshore centres is not so much a commitment from
Beijing to preserve their privileged position, but rather a
signal of its global ambitions for the yuan.
"It (the global payment system) helps create more of an even
playing field for the financial centres outside mainland China."
In the meantime, any loss in clearing fees for banks and
offshore centres due to competition from CIPS won't be paltry.
Daily yuan trading volumes have gone up 3-1/2 times since
2010 to $120 billion, the ninth highest, according to a Bank for
International Settlements report published last September.
Luxembourg, which signed a deal with China last month that
precedes the designation of a yuan clearing bank in the
financial hub, is watching the payment network's progress
Its finance minister Pierre Gramegna, who was in Beijing
last week to mark the agreement, said he would discuss the
network with Chinese authorities and "listen carefully" to what
they say about the timing of its launch.
But he is optimistic that not all is lost for CIPS rivals.
"In the end, it's the market that decides," Gramegna said
when asked whether clearing banks and centres will soon be
irrelevant. "It's the solution that is the most efficient that
players would choose."
(Additional reporting by Pete Sweeney in SHANGHAI; Editing by