context: The rapid depreciation of the RMB over the past two months has been a wake-up call for traders to strengthen protection against forex risk with financial tools. Given that most currently available products are designed for big firms, banks are urged to provide more personalised and creative services for SMEs.

PBoC (People’s Bank of China) issued ‘Notice on supporting cross-border RMB settlement for new trade formats’ on 20 Jun 2022, specifying

  • domestic banks may cooperate with non-bank payment institutions that have legally obtained an online payment business license and qualified clearing institutions to provide cross-border RMB settlement services
  • domestic banks cooperating with payment institutions should
    • have more than 3 years of experience in conducting cross-border RMB settlement business
    • meet the relevant banking requirements
  • requirements for payment institutions participating in cross-border RMB settlement services
  • filing process for cross-border RMB settlement business agreements with payment institutions
  • cross-border RMB settlement business must
    • have a real and legal transaction basis
    • comply with the relevant laws and regulations
      • clarifying domestic bank and payment institution responsibilities for combatting fraud and illegal behaviour
  • domestic banks must submit cross-border receipt and payment data in a timely, accurate manner
    • in accordance with the relevant requirements for information reporting
  • PBoC will conduct off-site monitoring

Industry insiders highlight four key takeaways from the notice, including

  • improving cross-border RMB settlement services for firms using new trade formats, such as cross-border e-commerce, which could help firms better navigate foreign exchange volatilities
  • expanding the scope of cross-border RMB settlement services from goods and services trade to all items under the current account
  • specifying requirements and procedures for banks and payment institutions
  • tightening supervision over illegal behaviour, such as money laundering and tax evasion

According to interviews conducted by 21st Century Economic Herald, the notice is expected to accelerate services collaboration between banks and relevant payment institutions. However, persuading overseas partner banks to set up offshore RMB accounts for PRC traders remains one of the key challenges, which requires overseas banks to connect to China’s CIPS (Cross-border Interbank Payment System) and launch RMB financial services.