Is China Ready To Replace SWIFT With Its Next-Gen Digital Currency Infrastructure

When China first introduced its Cross-Border Interbank Payment System (CIPS) in late 2015, many financial pundits wondered how it would operate as a direct counterpart or alternative to the nearing-50-years-old Society for Worldwide Interbank Financial Telecommunication (SWIFT) platform.

The primary objectives are pretty straightforward – launch Digital Chinese Yuan (e-CNY) and internationalise the paper currency via cross-border onshore transactions. Notably, take-up had been slow.

All that changed in 2021 when CIPS processed around 80 trillion CNY – this, as per Reuters reported, had been a massive 75% increase from the previous year. Notably, as of end-January 2022, CIPS confirmed that 1,280 financial institutions from 103 countries and regions have connected to its systems. The same can also be said of E-CNY as per a recent CNBC report: “China has been ramping up efforts to roll out its central bank digital currency and is currently far ahead in the space as compared with its global peers.”

Even as CIPS drives cross-border CNY transactions globally, it won’t bypass banks with offshore offerings. In fact, it is now working with 30 banks in Japan, 23 Russian financial services, and another 31 platforms operating within various African nations that have infrastructure development links with the Belt and Road Initiative. As for China’s Central Bank Digital Currency (CBDC) – AKA e-CNY – it is still being trialled.

Credit: CIPS

With all these growth milestones, can CIPS take on the role of primary contender to SWIFT? Will e-CNY become the alternative global currency the world is hankering for? Or do both – as many currently perceive – still play the second-fiddle position? With China-based MYBANK (Ant Group) and WeBank (Tencent) pushing the boundaries of innovation for digital banking and electronic payments within China and across the globe, that may no longer be the case.

Digital First Enablement

Notably, one year after it launched, CIPS connected with various ecosystem partners, including its Western counterpart – SWIFT. The Memorandum of Understanding that CIPS signed with SWIFT had introduced Chinese characters into the syntax messaging system that SWIFT manages and enabled both platforms to share reference data – such as IBAN data, transferring instructions and financial codes – to ensure CIPS can operate and communicate with SWIFT.

What drove China to even consider its own financial transaction platform?

It is widely known that some critical merits have been achieved once CNY became a widely accepted international denomination, more important is how the launch of both CIPS and e-CNY have accelerated technology development and digital adoption domestically on all levels.

An extensive study on e-CNY quoted from a China Daily 2021 Report that the People’s Bank of China 2021 published: “As of 30 June 2021, people opened more than 20.87 million personal wallets and over 3.51 million corporate wallets. Over 70.75 million transactions have used e-CNY, with a total value of over RMB34.5 billion. (Even so,) the People’s Bank of China has no preset timetable for the (official) launch.” The deep-dive from Asian Development Bank also added that e-CNY is likely to be adopted rapidly.

Credit: People's Bank of China

These details come after e-CNY is recognised as legal tender; both MYBANK and WeBank being included in the CBDC ecosystem; and extensively testing the digital currency at the Beijing 2022 Winter Olympics.

According to “The Digital Silk Road and China’s Technology Influence in Southeast Asia” Report from the Council on Foreign Relations, with the ongoing push for standardisation for CIPS and step-by-step rollout of e-CNY, it further expanded the need for a new global denomination that is not dependent on SWIFT or its counterpart – Clearing House Interbank Payment Systems (CHIPS).

To ensure its current digital innovations are widely adopted quickly, China leveraged on its Belt and Road Initiative – better known as the Digital Silk Road – to develop next-gen tech that powers its e-commerce and online payment facilities across the globe. Closely associated verticals – logistics; govtech and fintech; digital banking; and data security – have also experienced massive growths and innovations.

Slow Uptake

All these updates along with other digital innovations and economic movements – like the streamlining of current and upcoming Belt and Road developments; reforming Chinese tech players over the last few years; and clamping down on various digital content services to ensure governance and policy compliance – have helped positioned CIPS and China’s efforts to grow its CBDC for wider acceptance.

Oddly, even with these digital advancements and innovative technology progress, paired with back-bench guidance from various public agencies and provisional support from both SWIFT and the global banking ecosystem, CIPS and its propagation of e-CNY have not gained strong traction.

Likely, this slow take-up is due to China’s own tight policy controls for its CBDC and digital economy.

With ongoing global disruptions taking place and demand for an alternative to the US Dollar growing at an escalated rate, there is still an opportunity for e-CNY and CIPS to step up. After all, the technologies powering both concepts are considered to be industry and global first-movers.

Credit: Digital Yuan EN

In fact, Richard Turrin, author of “Cashless: China’s Digital Currency Revolution”, shared in an interview with CNBC the following: “If we go about five to 10 years out, yes the Digital Yuan can play a significant role in reducing the Dollar’s usage internationally. (After all,) the world’s second-largest economy is currently ahead in all financial technology by a decade. The US would take easily another five years just to get out of planning and trials for a potential digital dollar.”

Case in point, beyond expanding the capabilities of its digital banks, the government-driven mobile wallet app became the de facto platform to use in China. Key concerns like data security and user engagement policies have also been directly addressed to ensure maximum user privacy and policy governance are always maintained.

With these developments, CIPS and E-CNY have the potential to leap-frog towards the top. Seeing as how China now leads in 5G network technology and next-gen financial innovations – specifically, with banktech and mobile payments – it will be a matter of time before these two concepts make their respective marks on the global economy.

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• CIPS and e-CNY are state-driven ideas that helped power fintech, govtech, and datasec capabilities for China

• The introduction of e-CNY included using CIPS to help expand its use outside of China

• Both concepts, while revolutionary, did not gain as much traction