How China’s CIPS Boosts African Trade via Standard Bank

What happened

Standard Bank, one of South Africa's largest financial institutions, has been processing significant volumes of yuan-based cross-border payments through China's Cross-Border Interbank Payment System (CIPS). Recently, around CNY 8 billion (approximately ZAR 20 billion) flowed through Standard Bank via CIPS, illustrating a strong shift towards using the Chinese yuan in trade transactions between Africa and China.

Nombasa Hlathi from Standard Bank's Corporate and Investment Banking (CIB) division explained that this growing use of yuan payments is helping to bypass traditional foreign currency routes, which are often reliant on the US dollar, making cross-border trading smoother and less risky.

Why it matters

For many years, South African businesses and other African traders have depended on the US dollar for international trade settlements. This exposed them to currency volatility and exchange rate costs, adding uncertainty to deals.

China, as Africa's largest trading partner, champions the use of its currency—the yuan—to settle trade payments directly through CIPS. The system is an alternative international payment platform designed to simplify and secure yuan transactions globally. In turn, this reduces reliance on the dollar and cuts down on the costs and delays typically involved with multiple currency conversions.

For South Africans, this means easier access to the Chinese market, with payments becoming faster, cheaper, and less volatile. It also aligns with China's wider Belt and Road Initiative, which is geared towards boosting infrastructure and trade links across Africa.

What this means for South Africans

For importers and exporters in South Africa, Standard Bank’s use of CIPS provides an opportunity to conduct business in yuan without needing to first convert funds into US dollars. This can lead to:

• Reduced transaction fees and better exchange rates.
• Faster payment processing times, improving cash flow.
• Lower exchange rate risk since payments can be settled directly in yuan.

Small and medium-sized enterprises (SMEs) involved in trade can become more competitive when dealing with Chinese suppliers or clients by using yuan-based payments, supported by their bank expertise.

Additionally, government efforts to strengthen economic ties with China are likely to push for more trade deals settled in yuan, further embedding this system within the South African financial ecosystem.

Impact on consumers, jobs and small businesses

As trade between South Africa and China becomes more efficient and less costly, consumers may benefit from better pricing and availability of Chinese goods like electronics, machinery, and retail products.

Small businesses that import from or export to China can enjoy more predictable costs and faster payment cycles, which can help with budgeting and expansion plans. This stability is crucial for SMEs, which often operate with tight margins and limited cash reserves.

On the employment front, increased trade can stimulate sectors connected to manufacturing, logistics, and distribution as demand grows. The ability to reduce forex risk and transaction costs may encourage more entrepreneurs to enter export markets, potentially creating more job opportunities.

Risks and limitations

While the rise of yuan payments through CIPS offers many benefits, some challenges and risks remain:

• Currency volatility: Although settling in yuan reduces dollar exposure, the yuan itself can fluctuate against the rand, affecting cost forecasts.
• Dependency risk: Increasing reliance on China and its currency may expose South African businesses to geopolitical shifts or changes in Chinese economic policy.
• Infrastructure and knowledge gaps: Some small businesses may lack the expertise or systems to handle yuan invoicing and payments.
• Regulatory environment: South African and Chinese financial regulations around cross-border yuan payments continue to evolve and may create complexity.

Overall, businesses and consumers should stay informed and work closely with their banks to manage currency risks effectively and leverage the growing yuan payment system.

By embracing new payment technologies like CIPS, South Africa's trade landscape with China is transforming, fostering stronger economic ties with potential benefits across sectors.

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