Twitter “experts” can talk about Russia circumventing sanctions via China but China’s payment system can’t easily save Russian banks cut off from SWIFT


Moscow, Beijing working on SWIFT workaround -Russian lawmaker

By Reuters – March 16, 2022 @ 8:12pm

RUSSIA and China are working to establish cooperation between their respective financial messaging systems, a senior Russian lawmaker said on Wednesday, as Moscow responds to Western sanctions on its financial system.

Several Russian banks have been banned from the SWIFT international payments network over events in Ukraine, hampering their efforts to move money outside of Russia.

A messaging system developed by Russia’s central bank – System for Transfer of Financial Messages (SPFS) – should enable the flow of domestic interbank traffic, but has limitations on the timing, size and complexity of transactions it can process.

Connecting to China’s CIPS payment platform is another possible option. However, China’s platform can only be used for settling payments in yuan.

“To get rid of risks associated with maintaining trade turnover, establishing cooperation between the Russian and Chinese financial messaging systems is needed,” said Anatoly Aksakov, head of the financial committee in Russia’s lower house of parliament.

“I know that such work is taking place,” he said. “Our central bank is cooperating with the People’s Bank of China (PBOC) and I believe that the current situation will stimulate the relevant processes.”

Meanwhile, some Russian banks are issuing cards using China’s UnionPay system after sanctions stopped their cards issued by Visa and Mastercard from functioning overseas. — REUTERS



5 Mar 2022 04:24PM (Updated: 15 Mar 2022 04:58PM)

Western nations have sought to punish Russia for invading Ukraine by imposing economic and financial sanctions and excluding some Russian banks from the omnipresent SWIFT messaging system, known as the Gmail of global banking. 

That’s raised questions about whether China – which before the war signalled it wanted closer ties with Russia – could offer its neighbour a financial lifeline. 

In particular, many have focused on what a Chinese payment system, known as CIPS, could do. The answer seems to be not much, for now.

The Cross-Border Interbank Payment System was set up in October 2015 as a settlement and payment clearing system for transactions that use the yuan, also known as the renminbi, or “people’s currency.” 

The system is supervised by China’s central bank but is run by CIPS Co Ltd in Shanghai. Ownership is spread among dozens of shareholders including state-owned Chinese financial institutions, exchanges and Western banks. 

Its use has steadily increased, with an average daily transaction value of 388.8 billion yuan (US$61.3 billion) as of February, about a 50 per cent increase from a year ago, according to data from the company.

Most banks that use CIPS still communicate via SWIFT, either out of habit or because they don’t have the CIPS-specific messaging tool installed, or both, according to the Cross-Border Finance Research Institution, a Shanghai-based consultancy. 

The People’s Bank of China last year actually set up a joint venture with SWIFT to offer local network services and store message information in China. 

By size, CIPS is miniscule compared to SWIFT, which has more than 11,000 members and handles more than 42 million transactions a day. As of February, CIPS had about 1,300 participants, primarily in China, and processed about 13,000 transactions a day.


It would only work if the transactions are in renminbi – likely only when Russia and China are settling direct trades – and both parties were CIPS members. 

Such payments remain small: They increased to around 6 per cent of transactions in 2020, compared to 2 per cent in 2013. In reality, even as the two countries have sought to move away from using the dollar in trade, that’s meant largely switching over the euro – which is also now sanctioned. 

It’s unlikely that China’s largest state-owned banks would seek to bypass Western sanctions, considering that their international operations require access to dollar transactions, which could be cut off if they were caught via so-called secondary sanctions. 

Two of the biggest, Industrial & Commercial Bank of China Ltd and Bank of China Ltd, have already restricted financing for purchases of Russian commodities, especially in dollars.

Some Russian lenders are looking to start using China’s UnionPay system for credit cards after Visa Inc and Mastercard Inc suspended operations in Russia

That could allow Russians to make some payments overseas, with UnionPay operating in 180 countries and regions. Other potential avenues include:

  • About 13 per cent of Russia’s reserves, or an estimated US$77 billion, were in Chinese assets as of June 2021, the most recent figures from the Bank of Russia. Selling off those holdings would give Russia much-needed liquidity.
  • China’s central bank has a multi-billion dollar currency swap with Russia’s central bank, potentially allowing the two nations to provide liquidity to businesses so they could continue trading.
  • Smaller Chinese banks that don’t have international operations could also continue to do business with Russia; they would have less to lose if they were hit with secondary sanctions from western nations.
  • A research note from Natixis noted that China’s nascent digital yuan is unlikely to be of much use because it “does not yet offer cross-border transactions of any relevance, and Russia has not yet signed up” to use it.

Source: Bloomberg/vc


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1 Response to Twitter “experts” can talk about Russia circumventing sanctions via China but China’s payment system can’t easily save Russian banks cut off from SWIFT

  1. Pingback: My posts on the US dollar, Yuan, Gold, foreign exchange reserves, and the implosion/downfall of the US dollar | weehingthong

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