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SWIFT not irreplaceable, but its substitution requires considerable preparations: China's former central bank chief

Global Times

By Global Times Published: Apr 16, 2022 10:23 PM

SWIFT is not irreplaceable, but its substitution requires a great deal of preparations given SWIFT's efficiency and market scale, Zhou Xiaochuan, former chief of China's central bank, said on Saturday at an annual financial forum in Beijing.

At the 2022 Tsinghua PBCSF Global Finance Forum in Beijing, Zhou gave an insight into the role of SWIFT, China's Cross-Border Interbank Payment System (CIPS) and digital currencies amid current geopolitical instability.

Cross-border payments in global trade can theoretically be made without going through SWIFT, the former governor of the People's Bank of China (PBC) said.

If SWIFT is immensely used as a sanction tool, others will surely find other messaging conduits to continue doing trade, he said.

Global financial payment or messaging systems, should they slide into some "Cold War" patterns, would bring damage to everyone, Zhou commented.

The West's adoption of a financial nuclear option in using SWIFT to sanction Russia amid Ukraine tensions is a wakeup call for China's financial development. "We must get prepared," tapping the digital economy to ensure financial, trade security, Liu Liange, chairman of Bank of China, said at the forum.

Zhou's remarks on SWIFT, the Society for Worldwide Interbank Financial Telecommunication, especially when compared with CIPS, the homegrown payment and settlement system CIPS launched by the PBC in 2015, were thought provoking.

SWIFT is in fact a messaging platform, instead of a cross-border international payment system. It handles a lot of communications prior to payments being executed, and the following payment and settlement go through the system of each country, Zhou said.

While CIPS is designed for the cross-border payment for the yuan, making it the cross-border payment, settlement and clearing system of the Chinese currency. Of course, it also can be used by some other mainstream currencies, but so far there are not many of them using it, Zhou noted.

Last year, the number of transactions CIPS handled hit more than 3.3 million, up by over 50 percent from the prior year. It processed roughly 80 trillion yuan ($12.56 trillion) worth of transactions in 2021, a surge of over 75 percent from 2020, Jiefang Daily reported at the end of February.

Presently, participants in CIPS hit 1,259 and the system's coverage includes 103 countries and regions. Overseas institutions taking part in the system are 649, accounting for 52 percent of the total, according to the report.

By comparison, "an average of 42 million payments and securities transactions were processed using our FIN message service per day last year," SWIFT disclosed in early February. "SWIFT is accelerating flows to achieve instant processing between 4 billion accounts and 11,000 institutions in more than 200 countries."

The daily amount SWIFT handles stand at about $5 trillion, according to media reports, citing the US Treasury. Annually, with about 250 business days, SWIFT handles about $1.25 quadrillion.

Zhou, a frequently cited voice in central bank digital currency, also said at the forum that the cross-border use of China's central bank digital currency e-CNY can't be ruled out, but the possibility would focus on its use in cross-border retail.

The e-CNY is not meant to replace the US dollar and it "can't be easily used as military weapon," he said.