China thanks EU sanctions, Russian banks turn to Cips

  • Investing.com
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China thanks EU sanctions, Russian banks turn to Cips

By Alessandro Albano

Investing.com - The Western countries' ousting of Swift has led Moscow to seek shelter elsewhere. After being blocked from the interbank messaging system, Russian banks have moved to the Cross-Border Interbank Payment System (CIPS).

Developed by China - the Kremlin's main partner - in 2015, the CIPS payments system is mainly used to settle international credits in yuan and trade related to the Belt and Road Initiative, positioning itself as an alternative system to the traditional Swift created in 1973 although it is not yet fully independent of it.

A system, CIPS allows global banks to conduct cross-border transactions directly in yuan onshore, rather than through clearing banks in offshore hubs, and aims to make Beijing's currency a fully-fledged global reserve currency.

According to the state-run Jiefang Daily newspaper, the Chinese system has processed around 80 trillion yuan ($12.68 trillion) in 2021, a 75 per cent year-on-year increase, while in late January the company that runs the platform said around 1,280 financial institutions in 103 countries and regions had connected to the system.

These include 30 banks in Japan, 23 banks in Russia and 31 banks in African nations receiving yuan funds through infrastructure projects under Beijing's Belt and Road Initiative. Not only that, Western banks such as HSBC, Standard Chartered (LON: STAN ), Citigroup (NYSE: C ) and BNP Paribas (PA: BNPP ) have also decided to use the system, according to Qichacha's data.

With Beijing and Moscow's trade relationship 17.5% regulated by yuan (up from 3.1% in 2014), Russian banks have decided to turn to the more natural partner as well as to further develop their own cross-border payment system SPSF, created in 2014 but used mainly by domestic institutions.

Benefiting most from this eastward shift are Chinese stocks involved in the development of Cips, such as HyUnion Holding (SZ:002537) and Shenzhen Forms Syntron Information (SZ:300468), both of which are up 10% on the Shenzhen Stock Exchange.

According to Citic Securities, China's largest merchant bank, the increased use of the Cips 'could push forward the internationalisation of the yuan and reduce to some extent the dependence of China and its partners on the Swift system'.

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