It is proposed to connect Russian banks to the Chinese analogue of SWIFT: what’s the catch

Experts spoke about the features of the Chinese financial transfer system

In financial circles, the idea expressed by the prominent state banker Andrey Kostin is being actively discussed: to directly connect Russian banks to the Chinese analogue of SWIFT – the CIPS (Cross-border Interbank Payment System) international bank transfer system. The author connects his initiative with a sharp increase in cross-border payments between Russia and China. However, many financial experts doubt that the Chinese system can become a full-fledged replacement for the “unfriendly” SWIFT.

Andrey Kostin, speaking at the Russian-Chinese business forum, noted that in the last quarter alone, the number of cross-border transfers between the financial structures of the two countries increased by more than 200%. He also added that the share of the yuan in the structure of foreign currency savings of Russians has already amounted to 11%.

“Today, for the Russian economy, the yuan has actually become a replacement for the dollar. A significant and so far unsatisfied demand for yuan liquidity from Russian companies and citizens has formed,” the banker emphasized. In his opinion, in connection with this, there is an “urgent need” to transfer credit institutions to an alternative method of payment.

It is worth recalling that as a result of the financial sanctions imposed against our country since March last year, almost all systemically important Russian banks were disconnected from the SWIFT international bank transfer information system, and their accounts abroad were forcibly closed. The import of cash dollars and euros into Russia was also banned, which greatly complicated the conduct of foreign exchange transactions.

As for the Chinese system, CIPS has existed since 2015, it was conceived by the PRC authorities specifically for the internationalization of the yuan. True, according to the Financial Times business publication, its main purpose is to protect local financial data from US intelligence that has access to information from SWIFT.

Chinese CIPS is often called an analogue of SWIFT, even in banking circles, but in reality they are two different systems. CIPS is a payment system for RMB transactions that offers clearing and settlement services, while SWIFT is primarily a banking messaging network, not a payment system.

“It is important to understand that CIPS is a payment system, it simply offers settlement services. It transmits data via the SWIFT infrastructure, which is a messaging network, – explains the head of the analytical department of AMarkets Artem Deev, – Therefore, of course, restrictions for Russian banks will not go away. But! There is an important nuance here. Participation in CIPS can be direct or indirect. That is, the bank either logs in to the system itself, or does it through another credit institution. In fact, through the financial “laying”.

Many Russian banks began to cooperate with the Chinese system in the spring and summer of last year, shortly after the imposition of the first financial sanctions. And I must say that at that time the Chinese comrades had big plans to expand CIPS, but then their activity decreased. Now, as Alma Obayeva, chairman of the board of the National Payments Council, notes, it seems that the Chinese system is no longer willing to cooperate with Russia because of the risk of secondary US sanctions. In general, even if, having heeded Kostin’s call, Russian banks massively rush to connect to CIPS, it is not a fact that the Chinese will enthusiastically contribute to this process.

However, Artem Deev has a different opinion on this matter. “I don’t see any fundamental difficulties in indirectly connecting Russian banks to CIPS,” the expert says, “In principle, our large credit organizations will still have to use some kind of intermediate banks to make transnational payments. So why not through the Chinese system? After all, the yuan is still the only friendly currency in the international arena. There was talk (within the framework of the grain deal – MK) about using JPMorgan Chase & Co in this capacity, but the Chinese side so far looks more stable.”