DBS Bank's Chinese unit has been chosen to be among the first group of banks to test a new international payment system that promises faster transactions for businesses using the yuan.

The Cross-border International Payment System (CIPS), launched yesterday, is seen as a big step towards making the yuan a global currency for trade and investment.

CIPS has been described as a superhighway that will eventually replace the existing system, in which cross-border yuan transactions have to be routed through a network of designated offshore clearing banks. ICBC Singapore, for example, is the sole designated yuan clearing bank here.

The launch of CIPS allows for greater access and transparency for foreign banks in China, DBS said. For the first time, non-Chinese banks will be allowed to have direct access to China's onshore liquidity pool for offshore yuan transactions.

"This will lead to faster and more efficient payments for both onshore and offshore yuan transactions for our corporate customers. This will encourage and eventually increase the use of yuan for trade finance and investment purposes," said Ms Lum Yin Fong, the global head of product management at DBS' global transaction services division.

"With this clearing capability, we will be able to centralise all in-house yuan clearing to China and at the same time, offer these clearing services to other financial institutions."

China has selected 19 onshore banks - China-based banks - to participate in CIPS. The Chinese units of eight foreign banks, including DBS, HSBC, Standard Chartered and Citi, were among those chosen. Eventually, the aim will be for offshore banks to also participate, resulting in faster clearing of cross-border yuan payments between two countries outside China.

Just hours after China announced the launch of the system, a few banks said they had already cleared transactions using CIPS.

Standard Chartered Bank (China) completed a transaction for Swedish home furnishing giant Ikea that involved a movement of funds from China to Luxembourg.

ICBC Singapore, meanwhile, cleared a 35 million yuan (S$7.75 million) trade settlement payment from Singapore's Raffemet to Baosteel Resources in Shanghai.

ICBC Singapore general manager Zhang Weiwu said: "As the yuan bank of choice in Singapore, this is a welcome development and an excellent time to leverage Singapore's strengths as an offshore yuan hub, and to help financial institutions and corporates capture more opportunities in the flourishing offshore yuan market."