Cross-Border Interbank Payment System (CIPS) was launched in China in 2015, with the aim of providing a new platform for cross-border transactions. Since its launch, there has been speculation that CIPS could become a serious competitor to SWIFT, the global standard for interbank messaging and cross-border payments. In this article, we will explore whether CIPS can indeed pose a threat to SWIFT.
The Dominance of SWIFT
SWIFT has been the dominant player in the cross-border payment industry for decades. It is a cooperative society owned by its member financial institutions, and its messaging network connects more than 11,000 banks in over 200 countries. SWIFT provides a secure and reliable messaging platform for banks to send and receive payment instructions and other financial messages, and its network is widely regarded as the gold standard for global payments.
How CIPS Differs from SWIFT
CIPS, on the other hand, is a payment system designed specifically for cross-border transactions in renminbi (RMB), the currency of China. It is owned and operated by the People’s Bank of China (PBOC), the country’s central bank. CIPS provides a platform for banks to process cross-border payments in RMB, and its network currently connects more than 100 banks in 25 countries.
Limitations of CIPS
While CIPS and SWIFT both serve the same purpose of facilitating cross-border payments, there are several differences between the two systems. The most significant difference is that CIPS is limited to processing transactions denominated in RMB, while SWIFT can handle transactions in any currency. This means that CIPS is not a direct competitor to SWIFT, as the two systems serve different markets.
Potential Advantages of CIPS
However, it is worth noting that China is the world’s second-largest economy and the largest trading nation, with a rapidly growing share of global trade denominated in RMB. As China’s economic influence continues to grow, it is possible that CIPS could expand beyond RMB transactions and become a more direct competitor to SWIFT. Another potential advantage of CIPS is that it is owned and operated by the Chinese government, giving it a degree of political backing and support that SWIFT does not have.
Unlikely Threat to SWIFT
Despite these potential advantages, however, it is unlikely that CIPS will become a serious threat to SWIFT in the near future. SWIFT has established itself as the global standard for cross-border payments, and its network is deeply embedded in the international financial system. While CIPS may be able to carve out a niche in the RMB payments market, it is unlikely to displace SWIFT as the dominant player in the industry.
In conclusion, while Cross-Border Interbank Payment System (CIPS) has the potential to become a serious competitor to SWIFT in the future, it is currently limited to processing transactions in RMB and is unlikely to displace SWIFT as the dominant player in the global cross