How China’s Domestic Foreign‑Exchange Payment System (CFXPS) Works

Overview of CFXPS

China’s domestic foreign‑exchange payment system (CFXPS) is a nationwide inter‑bank, multi‑currency, real‑time gross settlement system. It is one of the four major payment systems of the People’s Bank of China, alongside the large‑value payment system, the small‑value payment system, and the online inter‑bank clearing system (Supernet).

The system was launched on 28 April 2008. Its core architecture consists of a clearing processing centre that receives, stores, clears, and forwards foreign‑exchange payment instructions. Settlement banks, designated or authorized by the central bank, open foreign‑exchange settlement accounts for direct participants and complete the final settlement of inter‑bank foreign‑exchange funds.

Payment Architecture

CFXPS supports eight currencies: HKD, GBP, EUR, JPY, CAD, AUD, CHF, and USD. The clearing processing centre classifies cleared instructions by currency and session before forwarding them to the settlement banks.

Transaction Generation and Confirmation

Foreign‑exchange transactions are analogous to commodity trades: one currency is the “product” and the providing bank acts as the “seller.” Traders submit quotation or bidding requests to the China Foreign Exchange Trading Center, which matches and confirms trades.

Transaction confirmation involves verification (one‑sided record sent for confirmation) and matching (both parties exchange records, and a matching engine validates them). Confirmation can be centralized—participants compare their data with the trading centre’s data—or bilateral—participants compare directly with each other. Centralized confirmation may also be performed via the SWIFT system.

Clearing Instructions and Accounts

Settlement accounts are held at the foreign‑exchange proxy settlement banks as inter‑bank deposit accounts. Clearing instructions contain each institution’s currency, settlement account information, and must be published to counterparties. Adjustments are also published promptly. Participants manage this information in the CFETS FX 2017 system.

Three message standards are commonly used in China’s foreign‑exchange market: the large‑value payment system specification, the cross‑border RMB payment system specification, and the SWIFT specification.

Transaction and Settlement Models

Two primary transaction modes exist: inquiry (quotation) trading and bidding trading. Inquiry trading is the dominant mode and uses PVP (payment‑vs‑payment) settlement to synchronize RMB and foreign‑currency settlement, reducing settlement risk.

Inquiry Trading Process

The inquiry process consists of four stages: (1) transaction and confirmation, (2) payment‑information confirmation, (3) payment processing initiation, and (4) PVP settlement completion.

Transaction stage : Buyers and sellers match and confirm currency trades via the foreign‑exchange trading centre.

Payment‑information submission : On the agreed settlement date, both parties submit PVP payment information to the foreign‑exchange payment system and the large‑value payment system (or delegate a direct participant to do so).

Payment‑information matching and confirmation : The large‑value payment system forwards received payment information to CFXPS, which matches and confirms it.

Foreign‑currency fund pooling and instant transfer : For successfully matched payments, CFXPS pools the selling bank’s funds, then issues an instant‑transfer instruction to the large‑value payment system, which moves RMB from the payable to the receivable settlement account and notifies CFXPS.

PVP settlement completion : Upon receiving the instant‑transfer success notice, CFXPS transfers foreign‑exchange funds from the payable to the receivable settlement account and notifies both counterparties.

Bidding Trading Process

After market close, the foreign‑exchange trading centre generates a settlement list and sends it to participants for confirmation. At the agreed settlement time, the centre creates an instant‑transfer instruction for each net payable/receivable per currency and sends it to both the large‑value payment system and CFXPS.

Accounting Example for Foreign‑Currency Business

The following illustrates journal entries for a customer who exchanges foreign currency A for foreign currency B and then makes a cross‑border payment.

1) Customer foreign‑currency debit
   Debit: Deposit account (Currency A)
   Credit: Real‑time foreign‑exchange trading (Currency A)

2) Exchange Currency A to Currency B (or USD)
   Debit: Real‑time foreign‑exchange trading – exchange sub‑account (Currency A)
   Credit: Real‑time foreign‑exchange trading – exchange sub‑account (Currency B)

3) Transfer Currency B into outbound account
   Debit: Real‑time foreign‑exchange trading (Currency B)
   Credit: Outbound foreign‑exchange payment account (Currency B)

4) Settlement of Currency B
   Debit: Outbound foreign‑exchange payment account (Currency B)
   Credit: Settled foreign‑exchange payment (Currency B)
   Debit: Settled foreign‑exchange payment (Currency B)
   Credit: Foreign‑exchange deposit in other banks (Currency B)