Many Russian banks were cut off from SWIFT when Western nations put sanctions on Russia for its invasion of Ukraine.
SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
Reuters reported that Chinese payment-related firms’ shares soared on Monday, Feb. 28, as investors expected that pulling Russian banks out of the SWIFT system would assist China’s payment system.
Launched by the Chinese central bank in 2015, the Cross-Border Interbank Payment System, or CIPS, is seen as a potential alternative to the U.S.-dominated global settlement system of which SWIFT is a part.
SWIFT is the messaging system run by the Society for Worldwide Interbank Financial Telecommunication. It has over 11,000 member institutions.
CIPS said its members are across 103 countries with about 1,280 financial institutions as of the end of January. The system includes 75 directly participating banks, mostly Chinese lenders, and 1,205 indirectly participating banks.
The fledgling system also has 23 banks in Russia and 31 banks from African nations, receiving yuan funds via Beijing’s Belt and Road Initiative.
In a research note published on Sunday, China Securities Co. wrote that several Russian banks had joined CIPS as direct participants.
In 2020, the yuan accounted for 17.5 percent of trade between the two countries, up from 3.1% in 2014. As a result, China has become the biggest trading partner for Russia’s exports and imports.
CIPS’s prospect is unclear as it still depends on SWIFT, its potential competitor.
Bloomberg cited Yu Lingqu, vice director of the center for financial studies at China Development Institute. He said that indirect CIPS participants still need to go through SWIFT while using CIPS’s messaging, clearing, and settlement services.
Yu Lingqu said, “There are opportunities for the international use of yuan and the CIPS, but we shouldn’t be blindly optimistic.”