- The need to build up a standalone RMB-based international payment system becomes more prominent for China’s financial regulators after the financial sanctioning of Russia by exclusion from SWIFT, a widely-used information exchange system for cross-border payment.
- Ramping up the use of China’s Cross-border Interbank Payment System (CIPS) is highly likely to be even more prioritized by China’s financial policymaking going forward.
- In the past four years, cross-border transactions via this international payment system have grown significantly. Especially for 2021, Sinolytics estimates show a total transaction amount of RMB 82bn, 83% higher than the 2020 level.
- As of February 2022, CIPS has 76 directly participating institutions and 1.212 indirectly participating institutions globally. However, the majority of the market participants are located in Asia and connected to financial institutions with Chinese background.
- To expand its use among global financial institutions, CIPS would have to improve its international standard alignment and payment service scope. More importantly, the role of RMB as an international currency would have to be significantly enhanced, not only in international trade but also among global investors.
- To achieve this, China’s government will push further reforms on capital account regulations, allowing freer capital flows and reducing interventions in the foreign exchange market. Further, China can only make CIPS successful, if it improves policy transparency and maintains the ability of its capital market to attract global funding into China.
Sinolytics is a European consulting and analysis company specializing in China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.