Reduce Dependence on US Dollar, Libya Agree to Connect to China Payment System

Illustration of the Chinese yuan currency. Libya agreed to connect its commercial banks with the CIPS payment system to facilitate direct transactions in yuan and reduce dependence on the US dollar. Photo: Pexels.

Libya and China have agreed to link Libyan commercial banks with China's cross-border payment system. The deal will allow yuan transactions to be carried out more directly and reduce dependence on the US dollar.

Anadolu Agency, quoted on Sunday, July 19, said an agreement was reached between the Governor of the Central Bank of Libya Naji Mohammed Issa and the Governor of the People's Bank of China Pan Gongsheng in a meeting in Beijing.

The two discussed the value of Libyan and Chinese trade, transaction barriers, and ways to accelerate the growth of trade relations.

The Central Bank of Libya stated that the country's commercial banks would be connected to the Cross-Border Interbank Payment System or CIPS.

"It was agreed to connect Libyan commercial banks with CIPS, which will simplify and facilitate financial transfers," the Central Bank of Libya said.

CIPS was launched by the People's Bank of China in 2015. This system is a cross-border payment network that processes transactions in yuan.

Through CIPS, banks can send and receive payments in yuan directly without having to process transactions through US dollar-based intermediary banks.

Both parties also agreed to overcome trade barriers and simplify transaction procedures between Libya and China.

The initial phase will start with direct money transfers to China. The scheme is aimed at facilitating small-scale traders' transactions.

Libya and China also agreed to open a direct letter of credit through Chinese banks. Letters of credit are guarantees of payment from banks in trade transactions.

The official delegation of the Libyan banking sector will also visit Beijing as soon as possible. The delegation will be led by the Governor of the Central Bank of Libya and will be followed by the directors of commercial banks.

The visit will discuss interbank cooperation as well as the use of China's experience in electronic payments and direct fund transfers.

The Central Bank of Libya assessed that this step could reduce dependence on the informal market or transactions outside the official banking channel.

The deal is also expected to help Libyan banks meet anti-money laundering and terrorism financing standards, as well as improve the reputation of the country's banking sector.