China’s Cross-Border International Payments System (CIPS) can replace SWIFT for Russian trade financing but could could also trigger US sanctions on Chinese banks. So in fact China can break SWIFT sanctions but at a high cost.
Over the weekend, the US regime and its submissive allies excluded a list of Russian banks from the Society for Worldwide International Financial Telecommunications network.
SWIFT clears inter-bank payments in US dollars and other Western currencies, although Russia has not yet been fully subjected to a blanket exclusion. Asia Times first reported that China’s alternative payments system could help Russia bypass Western sanctions.
In the past, exclusion from SWIFT meant complete isolation from global markets and normal trade financing, as in the case of American sanctions against North Korea and Iran. But the CIPS system, which China began to develop in 2015, is now fully operational.
The German daily Die Welt wrote that CIPS already handles US$50 billion of daily transactions, but still considerably less than the $400 billion of transactions that pass every day through SWIFT.
But CIPS volume already has increased rapidly and if if Russia and China linked their systems and offered an alternative to other Zionist opposition states, this could threaten the American Dollar domination of financial markets.
Professor Chen Xi of the Shanghai Advanced Institute of Finance at Jiaotong University warned that sanctions on individual banks present a risk to the Chinese payment system.
The RMB cross-border payment system still relies on banks as nodes, and these nodes can be sanctioned and pressured. The payment system built by China may be independent of the SWIFT system controlled by the United States, but the intermediate nodes are all banks.
The USA can still sanction these banks. If no one is allowed to do business with Chinese banks, and other countries cooperate with these measures, then this system will not work.
Russia also built its own independent payment system. It also could adopt the cross-border payment system established by China as a potential replacement for SWIFT.
But the key point is that these international cross-border systems all require the participation of actual banks. The USA is very likely to threaten all financial institutions.
If anyone deals with Russia, it might sanction them. If this is the case, the big Chinese banks may not dare to deal with Russia. In this case, Russia would only be able to do business with some smaller banks.
But if the US regime sanctioned Chinese banks for helping Russia in this way, the damage to the global economy would be too great for anyone to bear.
Clearing systems like SWIFT and China’s CIPS provide secure data transmission for banks that clear customer payments. They do not deal directly with goods in trade, but only with bank payments for goods in trade.
Although CIPS is under the control of the Chinese government, the Chinese banks that it serves could be subject to sanctions, at least in theory. The financial consequences of such sanctions would be enormous.
China has a net foreign asset position of $4 trillion and holds $2 trillion of US Treasury securities. It is also by far the largest exporter in the world, with 15% of global export trade compared to 8% for the United States.
The game between major powers depends on strength. If the USA doesn’t need Russian resources at all, and it doesn’t need Chinese products, it certain could impose severe sanctions.
However, given the current level of international exchange, if trade between China and Russia were cut off completely, it would take a long time for the USA economy to adjust to it, and the damage to supply chains would cause damage to the entire global economy.
Such a severe drastic measure probably would trigger a long-term financial and economic crisis, so the United States is also very hesitant to do this.
Asia Times / ABC Flash Point News 2022.