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The latest data on China’s Cross-Border Interbank Payment System (CIPS) underscores its rapid growth and increasing significance in the global financial landscape. As of May 31, CIPS had processed an impressive CNY 675 trillion (approximately USD 94 trillion) in various payment transactions, according to Xinhua News Agency. This substantial volume highlights the system’s growing adoption for yuan-denominated cross-border settlements.
CIPS Network and Reach:
CIPS’s network has expanded significantly since its launch, now boasting 1,683 participants. These participants are composed of:
* Direct Participants: These are banks and financial institutions that have a direct connection to CIPS, enabling them to process and settle cross-border yuan payments for themselves and on behalf of indirect participants. The first batch of CIPS direct participants, launched on October 8, 2015, included 19 Chinese and foreign lenders.
* Indirect Participants: These institutions access CIPS services through direct participants.
Through this dual-tier participant structure, CIPS-related services now reach over 180 countries and regions, connecting more than 4,900 legal entity financial institutions. This robust global network backbone is supported by Chinese banks, clearing institutions, and an increasing number of systemically important foreign banks.
Evolution from Pre-CIPS Era:
Before the launch of CIPS in 2015, cross-border yuan clearing was a more complex and less efficient process. It primarily relied on the SWIFT messaging system for transmitting payment instructions. However, the actual clearing and settlement of funds were executed through China’s domestic payment systems, such as the National Advanced Payment System (NAPS) or the High-Value Payment System (HVPS). This often involved multiple correspondent banking relationships, leading to longer processing times and higher costs.
CIPS vs. SWIFT:
It’s important to clarify the relationship and differences between CIPS and SWIFT:
* SWIFT (Society for Worldwide Interbank Financial Telecommunication) is primarily a messaging network. It provides a secure and standardized way for financial institutions worldwide to exchange information and payment instructions. SWIFT does not hold funds or clear/settle transactions itself.
* CIPS, on the other hand, is a payment system that specifically handles the clearing and settlement of cross-border yuan transactions. While CIPS can utilize SWIFT for messaging, especially for participants not directly connected, its core function is the actual movement and finalization of funds in RMB.
CIPS was established by China to improve the efficiency of RMB transactions and reduce reliance on intermediary banks and the U.S. dollar, thereby promoting the internationalization of the yuan. By providing direct clearing and settlement services, CIPS aims to offer a more streamlined, cost-effective, and real-time alternative for yuan-denominated transactions compared to the multi-layered pre-CIPS process. The continuous expansion of its direct participant base, as evidenced by the recent agreements with six foreign banks, further solidifies its position as a critical component of the global financial infrastructure for the Chinese currency.

Video courtesy of Eurex

Video courtesy of Eurex