China developed its own cross-border payment system, known as the Cross-Border Interbank Payment System (CIPS), as an alternative to the SWIFT network. Launched in 2015, CIPS was designed to facilitate international yuan-based transactions, particularly for trade settlements involving China.
While CIPS is an alternative to SWIFT, the two systems serve different purposes in cross-border payments. SWIFT primarily functions as a global financial messaging network, while the Chinese counterpart focuses on clearing and settling yuan-denominated transactions. This explains the different roles both systems take while clearing transactions. The Chinese system operates in a narrow lane, while the West-led system is much broader.
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Roughly 80% of CIPS transactions still rely on the SWIFT messaging system for international settlement,According to a report by The Washington Post. This underscores how interconnected China’s alternative payment network remains with the global financial infrastructure it aims to rival.
Let’s take one-on-one on why CIPS is no match for the SWIFT payment system:
The only point where CIPS wins over SWIFT is the time it takes to settle payments. The West-led system usually settles 50% of payments in 30 minutes and 96% in 24 hours. Some even take 1-5 business days, depending on the scale of the payments. However, the Chinese counterpart clears them within seconds to minutes. It uses real-time gross settlement (RTGS) and has no other multiple correspondent intermediaries.
Source: Watcher Guru
