The decision to exclude some Russian banks from the international SWIFT payment system has caused great concern in the global financial system, as its effects are expected to be significant in a number of sectors of the economy. However, in this climate of instability and uncertainty, which is reflected in nervous liquidations in the markets, there are some who rub their hands in satisfaction.
And one simple remark is enough to see what happens: Chinese stocks related to payment systems soared on Monday as investors bet that the exit of Russian banks from the SWIFT system would benefit China’s own cross-border payment system, CIPS , and would accelerate the growth of the country’s digital currency, e-CNY.
Several Russian banks are already linked to China’s Cross-Border Interbank Payment System (CIPs).
China has long hoped for independence in cross-border payments and a widely used digital currency. Despite the great investment and effort, these goals remained elusive. And the decision to block Russian banks from Swift may be exactly what China needed to launch its own system, Cips.
With the support of the People’s Bank of China, Cips offers clearing and settlement services for cross-border payments in yuan. The small share of the currency in international payments – just 2 percent – means that the Cips are far from Swift’s challenge. The US dollar remains dominant in global payments with a share of about 40%.
Russia has created its own local alternative, the SPFS. The Russian central bank created it in 2014 in the wake of its invasion of Crimea. But there are only 20 foreign banks in the SPFS, too few to be particularly useful.
This compares with more than 1,200 financial institutions in 100 countries, including major global banks, operating at Cips. More than 20 Russian banks are already connected. Digital payments between the two countries have risen sharply in recent years. The same goes for the renminbi settlement, which quadrupled to almost a fifth of all trade between the two in 2020. Russia’s central bank has invested in Chinese assets, although it has reduced its exposure to the US and Western Europe.
What is CIPS?
With the support of the People’s Bank of China (PBOC), China launched the CIPS liquidation and settlement services system in 2015 to internationalize the use of the yuan. It allows world banks to clear cross-border transactions in yuan directly, instead of clearing banks at offshore yuan nodes.
Who uses CIPS?
CIPS processed about 80 trillion yuan ($ 12.68 trillion) in 2021, up 75% from a year earlier, according to the state-run Jiefang Daily. By the end of January, CIPS said about 1,280 financial institutions in 103 countries and regions were connected to the system.
They include 30 banks in Japan, 23 banks in Russia and 31 banks from African nations that receive yuan funds through infrastructure projects under the Beijing Belt and Road initiative, according to a 2019 survey by the Nikkei newspaper.
CIPS counts several foreign banks as shareholders, including HSBC, Standard Chartered, Bank of East Asia, DBS Bank, Citi, Australia and New Zealand Banking Group, and BNP Paribas, according to Qichacha, an information provider using official registration sources. companies.
Where is CIPS based?
At present, CIPS still relies heavily on SWIFT for cross-border financial messaging, but has the ability to operate independently and have its own direct line of communication between financial institutions.
For Chinese banks and companies, CIPS can serve as a messaging system without the risk of exposing transaction information to the United States, BOC International said in a 2020 report.
