China’s Cross-Border Interbank Payment System (CIPS) has attracted growing attention as nations seek alternatives to traditional cross-border payment networks amid rising geopolitical tensions. While some have suggested CIPS could help countries bypass Western financial sanctions, its current role is more limited. Although adoption continues to grow and the network supports renminbi-denominated transactions, CIPS still relies heavily on established global financial infrastructure and remains closely connected to existing international payment standards.
This piece posted in Bloomberg is somewhat of a reprise of one we saw a couple of weeks ago in another online posting. We commented upon that one, which was focusing on a CBDC as a way to get around sanctions. In today’s article, the focus is on China’s CIPS (Cross-Border Interbank Payment Systems) as the potential vehicle to achieve the same end. The staff author provides some detail on the scope and relevance of CIPS.
‘The Cross-Border Interbank Payment System was set up in October 2015 as a settlement and payment clearing system for transactions that use the yuan, also known as the renminbi, or “people’s currency.” The system is supervised by China’s central bank but is run by CIPS Co. Ltd in Shanghai. Ownership is spread among dozens of shareholders including state-owned Chinese financial institutions, exchanges and Western banks. Its use has steadily increased, with an average daily transaction value of 388.8 billion yuan ($61.3 billion) as of February, about a 50% increase from a year ago, according to data from the company.’
The piece goes on to explain how often the banks using CIPS are also using SWIFT as the messaging standard, since many non-Chinese institutions have not installed translators for CIPS clearing. In fact, the PBOS and SWIFT have some additional deals for network services and data storage, so in some sense are partnering more than competing, at least at this stage. Then the piece goes on to discuss relative size differences between CIPS and SWIFT (which is a messaging system only for these purposes, although SWIFT offers value-added services as well). So the real question is whether (if desired) CIPS could be used to circumvent sanctions with Russia.
‘It would only work if the transactions are in renminbi — likely only when Russia and China are settling direct trades — and both parties were CIPS members. Such payments remain small: They increased to around 6% of transactions in 2020, compared to 2% in 2013. In reality, even as the two countries have sought to move away from using the dollar in trade, that’s meant largely switching over the euro — which is also now sanctioned. And there are other issues:
• It’s unclear to what extent non-Chinese importers or exporters that do business with Russia would be willing to accept payment in renminbi.
• For CIPS to be of any help to Russia in skirting the U.S. financial system, Russia would have to be part of a renminbi-centric financial system. That seems unlikely given China’s capital controls on its currency, which restrict the flow of funds in and out of the country.’
As geopolitical pressures reshape global commerce, CIPS is likely to play a larger role in facilitating renminbi-based cross-border payments. However, significant hurdles—including limited international adoption, currency controls, and continued reliance on SWIFT messaging—mean it is unlikely to replace the existing global payments system in the near term. Instead, CIPS represents one component of an increasingly multipolar cross-border payments landscape.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
