(Bloomberg) — China needs to speed up development of its homegrown cross-border payment system and the digital yuan, after Western nations used the SWIFT system as a tool to sanction Russia, according to Citic Securities Co.
Promoting the Cross-Border Interbank Payment System, or CIPS, could “push forward the internationalization of the yuan and reduce China’s reliance on the SWIFT system to an extent,” Ming Ming, head of fixed income research at Citic, said in a report Tuesday.
Countries including the U.S. decided to cut some Russian banks off from the SWIFT messaging system over the weekend. The system run by the Society for Worldwide Interbank Financial Telecommunication is essential to global cross-border transactions worth trillions of dollars.
Read more: Why SWIFT Ban Is Such a Potent Sanction on Russia: QuickTake
China can encourage overseas banks to join the fledgling CIPS system, which clears and settles international claims in yuan, by leveraging the Belt and Road Initiative, the Regional Comprehensive Economic Partnership trade deal and other international cooperative agreements, according to Ming. The digital yuan, currently under trial and primarily aimed for domestic retail use, could potentially be used for trade settlement and this would be independent of the SWIFT system, he said.
However, Chinese financial institutions will be cautious about providing financial services for Russian companies and individuals via the CIPS, as that could subject themselves and the system to U.S. sanctions, Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd., said in a report Tuesday.
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