China’s CIPS Explained: How It Differs From SWIFT

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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Here’s the Key Differences Between CIPS and SWIFT

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:

1. SWIFT handles 40 million cross-border transactions per day, while CIPS clears only 30,500 daily transactions.
2. The Chinese system is linked to around 5,000 banks across 190 countries, while SWIFT connects to 11,500 financial institutions in 220 countries, including territories.
3. SWIFT is an independent payment messaging system, but CIPS relies on it for international settlements.
4. The default payment mechanism in the majority of countries is SWIFT, while China’s system acts as an alternative.

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.