To understand modern finance, you must know about CIPS (Cross-Border Interbank Payment System). China launched this network in 2015. Many experts call it the “alternative to SWIFT.” But how does it work? More importantly, why is it vital for de-dollarization?
1. A Faster Highway for the Yuan
CIPS is a payment system. It allows banks to settle international deals directly in Chinese Yuan (RMB).
In the past, trading Yuan was difficult. Banks had to use complex “middle-man” banks in Hong Kong. This was slow and expensive. Today, CIPS makes these payments direct, fast, and secure.
2. CIPS vs. SWIFT: What is the Difference?
Many people confuse these two systems. However, they serve different roles:
- SWIFT is a messaging service. It tells banks where to send money.
- CIPS is a settlement service. It actually moves the money.
Importantly, CIPS can also send messages. If a bank is banned from SWIFT, it can still use CIPS to trade in Yuan. This makes it a powerful shield against financial sanctions.
[Image showing a direct link between a global bank and the CIPS hub in Shanghai]
3. Why is CIPS Growing So Fast?
The success of CIPS is tied to China’s global strategy. There are three main reasons for its growth:
- Bypassing Sanctions: As we discussed in our article on the Renminbi, CIPS protects countries from US dollar restrictions.
- The Belt and Road Initiative: China encourages its partners to use CIPS for major infrastructure projects.
- Lower Costs: By removing intermediate banks, CIPS reduces fees for companies. This makes the Yuan more attractive for global trade.
4. The Challenges Ahead
Despite its growth, CIPS is still smaller than Western systems. Its success depends on the global use of the Yuan. Currently, the Yuan is not fully “free” to move. Therefore, CIPS is a strong alternative, but it is not yet a total replacement for the dollar.
Conclusion
The CIPS system is the engine behind de-dollarization. For investors, it is a key sign of Asia’s rising financial power. By watching CIPS, we can see how fast China is becoming financially independent.
