Bank of China Report Calls for Shift from SWIFT to CIPS for Cross-border Settlement Due to Concern over US Sanctions

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A new report from one of China big state-owned banks has called for a shift towards greater use of the country’s own financial network for cross-border transactions, due to concern over the potential impact of US punitive measures.

The report from Bank of China’s investment unit BOCI said that China’s dependence upon the Belgium-based SWIFT system – the main network employed by banks for international financial transactions – made it vulnerable to punitive action on the part of an increasingly hostile US.

This punitive action could potentially assume the form of cutting off access to SWIFT, as well as a ban on certain Chinese banks from US dollar settlement.

“A good punch to the enemy will save yourself from hundreds of punches from your enemies,” said the report. “We need to get prepared in advance, mentally and practically.”

The BOCI report called for China to make greater use of its own Cross-Border Interbank Payment System (CIPS), which was established in 2015 as part of efforts to advance internationalisation of the Chinese renminbi.

CIPS is under the supervision of the Chinese central bank, and processed 135.7 billion yuan (approx. USD$19.4 billion) a day in 2019 across 96 countries and regions.

The BOCI report also mooted the possibility of suspending use of the greenback as the anchor currency for FOREX controls, as well as the launch of legislation akin to the EU’s Blocking Statute, that would allow China to maintain trade relations with countries under US sanctions such as Iran.

Fang Xing­hai, vice-chair with the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion (CSRC), previously said that Chi­na’s de­pen­dence upon the US dol­lar for in­ter­na­tional pay­ments put it in a po­si­tion of vul­ner­a­bil­ity vis-a-vis po­ten­tial sanc­tion mea­sures by the Trump ad­min­is­tra­tion. 

For this rea­son he views in­ter­na­tion­al­i­sa­tion of the ren­minbi as a ne­ces­sity to avoid the risks cre­ated by ex­ces­sive de­pen­dence on the US dol­lar. 

“We must make preparations in advance – real preparations, and not just psychological preparations,” said Fang.

“Yuan in­ter­na­tion­al­i­sa­tion is a must to off­set ex­ter­nal fi­nan­cial pres­sure.”

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