Su Ning: China's inter-bank payment and clearing service
Address by Mr Su Ning, Deputy Governor of the People's Bank of China, at the press
conference on the launch of the Electronic Commercial Draft System, Beijing, 28 October
2009.
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Dear guests,
Friends from the media,
Ladies and gentlemen,
Good morning.
On October 28, 2009, the People's Bank of China (PBC) launched the Electronic
Commercial Draft System (ECDS). The ECDS is an important system built by the PBC to
provide inter-bank payment and clearing service. The operation of this system marks a
significant milestone in the application of information technology in China's financial sector. It
will have a long-term impact on the future development of the draft business in China.
The PBC is committed to improving the financial infrastructure, and has made much progress
in recent years. With our efforts, a modern fund transfer network is taking shape. We initiated
the Large Value Payment System (LVPS) in 2005, and introduced the Bulk Electronic
Payment System (BEPS) in 2006. In the following two years, we built the Check Imaging
System, which makes nationwide use of checks possible, and the Foreign Currency Payment
System, which allows real-time transfer of foreign currency denominated funds across banks.
Together with the recently completed intra-bank fund transfer system and the inter-bank
bankcard payment system, these important networks greatly facilitate the activities of
enterprises and households, and help to enhance the security and efficiency of the financial
system. These systems also lead to a surge in non-cash payments. In 2008, cash payments
dropped below 1 percent of the total payment.
Building the ECDS and promoting the use of commercial drafts also pose challenges to
enterprises, financial institutions, and to the central bank itself. To ensure smooth operation
of the system and to prevent risks, the PBC decided to launch the system step by step. On
October 28, a first group of 20 financial institutions were covered as the system began to
operate, including 11 national banks, 2 local banks, 3 rural financial operations and 4 finance
companies.
Commercial draft is an important non-cash payment instrument. It is also one of the most
frequently used short-term financing tools for banks and enterprises, and a major form of
credit. From 2001 to 2008, total commercial draft acceptance expanded from 1.2 trillion yuan
to 7.1 trillion yuan, and commercial draft discount jumped from 1.4 trillion yuan to 13.5 trillion.
In the first half of 2009, bill financing, i.e., financing based on commercial drafts, recorded
12.8 trillion yuan, which amounts to 57.7 percent of the stock exchange turnover, or
162 percent of the turnover on the interbank borrowing market during the same period.
Despite the rapid development and growing importance, commercial drafts face a number of
problems. These include irregularities in draft acceptance and discount, dishonor by
nonpayments, fake drafts, and unregulated innovation. Other aspects of the weaknesses include
the decentralized markets and inadequate use of information technology. These problems
could lead to financial risks, threaten fund security, and hamper the development of the draft
market.
Electronic drafts provide an effective solution to these problems. With the legal foundation
and technological support in place, the PBC decided in January 2008to introduce electronic
drafts and set up an electronic draft system The system was completed after over one year's
preparation. The new system has three major functions. It is designed to receive and process
data of electronic drafts and provide relevant payment and clearing services. It serves as a
platform where paper drafts are registered. Moreover, the system provides quotations for
interbank discount, a service that will be offered later.
The development of electronic drafts needs institutional support. To ensure the secure,
stable, and efficient performance of the system, as we started the new system, we also
released 9 regulations in an effort to regulate the behaviors of participants.
The launch of electronic drafts and the new system is of great significance. It helps to
reduce, or even eliminate operational risks, lower trading costs, improve trading efficiency,
and foster the development of a single national draft market. It will encourage the
development of commercial acceptance drafts. With the introduction of electronic drafts,
short-term interest rates will better reflect the supply and demand in the market. The new
system will provide statistics of higher quality to support policy making. Electronic drafts will
provide a convenient and low-cost financing channel for enterprises, particularly small- and
medium-sized enterprises. It will also shape the way financial institutions manage their draft
businesses.
Electronic drafts and the new system have brought a number of changes. With the latest
technology integrated in the new system, the traditional manual mode of draft business will
be replaced by an advanced one that is based on computer networks. Moreover, finance
companies can directly access the draft market through the new system, and the maximum
period for draft payment is extended from 6 months to 12 months. Trading rules are also
specified and updated in relevant regulations, and the deliver-versus-payment (DVP)
approach is introduced in settling draft transactions to reduce risks.
Going forward, the PBC and financial institutions should strengthen communication and
training, and focus on innovation and risk prevention. In particular, it is important that merits
of electronic drafts are effectively communicated to their major user, i.e., the enterprises.
Financial institutions should leverage the new system to consolidate their businesses and
create better products. It is also critical that we make efforts to address potential security
risks facing the system.
The development of the Electronic Commercial Draft System received support from many
financial institutions. A number of banks and finance companies, including the China
Merchants Bank, China CITIC Bank, China Minsheng Bank, and Industrial and Commercial
Bank of China contributed to the discussions, drafting of regulations, and system testing that
eventually lead to the creation of the system. On behalf of the People's Bank of China, I
would like to thank these banks, and other banks, finance companies, and the clearing
center for rural credit banks for your contribution.
Thank you.