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BIS head Carstens: China’s clearing and settlement service is no substitute for global Swift system

BIS head Carstens: China’s clearing and settlement service is no substitute for global Swift system

Chinese yuan playing ‘complementary’ role in interbank settlement, but CIPS won’t rival Swift, says global central bank boss

  • China’s clearing and settlement service is no substitute for the global payment system Swift, says Agustin Carstens of Bank of International Settlements
  • Digital central bank currencies will enhance efficiency but must be developed with care, while cryptocurrency is ‘not money’ and must be regulated, he says

As the yuan is now the world’s fifth most used currency for payments by value, the Chinese central bank clearing system is playing an important complementary role in the global payment system, according to the boss of the global central bank.

However, China’s clearing and settlement service, Cross Border Interbank Payment System (CIPS), is no substitute for the global payment system Swift, Agustin Carstens, general manager of Bank of International Settlements (BIS), told the Post in an exclusive interview on Tuesday.

“In this space, it is not probably adequate to think about substitutes,” Carstens said. “It is not a race. Swift covers some forms of payments initiated by different types of intermediaries, while other systems could cover others. The important thing here is the complementarity of the different payment systems.

“There are many needs among societies, and we need to let the different solutions flourish.”

The yuan now has a 2.13 per cent of the market share in global payments by value as of October, according to Swift. Photo: Shutterstock
As part of its effort to promote the internationalisation of the yuan, China’s central bank launched CIPS in 2015. It allows global banks to clear cross-border yuan transactions directly onshore, instead of through clearing banks in offshore yuan hubs. CIPS processed 80 trillion yuan (US$11.44 trillion) in 2021.

The yuan now has a 2.13 per cent of the market share in global payments by value as of October, according to Swift. That is ahead of the Canadian dollar at 1.75 per cent and the Australian dollar at 1.33 per cent, but behind the Japanese yen at 2.95 per cent, the British pound at 7.85 per cent, the euro at 34.43 per cent and the US dollar at 42.05 per cent.

Swift is the global interbank system that transfers trillions of dollars worth of currencies worldwide. It came under spotlight after it banned some Russian banks from using the system as one of the sanctions against Russia for its invasion of Ukraine earlier this year.
Staffers rest at a booth promoting the e-CNY, China’s digital yuan currency, during the China International Fair for Trade in Services (CIFTIS) in Beijing on September 2, 2022. Photo: AP
Carstens supports the development of digital central bank currency (DCBC) projects such as e-CNY and e-HKD, as these innovations will enhance efficiency in global payments.

He also supports efforts, like those in Hong Kong, to regulate cryptocurrencies, which he said are “not money” but “speculative assets” that require proper regulation to safeguard investors.

Basel-based BIS, known as a bank for the central banks, was founded in 1930 with 63 shareholding central banks. Its mission is to serve central banks in their pursuit of monetary and financial stability, and international cooperation. It set up its Asian Office in Hong Kong in 1998 and an Innovation Hub in 2019.
BIS is keen on supporting innovation in many CBDC projects, including those related to Hong Kong and China, Carstens said.

A BIS survey last year found that 86 per cent of 65 central banks were researching the potential for CBDCs, with one-fifth of the world’s population likely to see a sovereign digital currency in the next three years.

What does Hong Kong mean by virtual assets?

A multi-country central bank digital currency project called mBridge, involving mainland China, Hong Kong, Thailand and the United Arab Emirates, is looking at various options to expand its use, including capital market transactions.
The Hong Kong Monetary Authority is working on a digital Hong Kong dollar project called e-HKD, while mainland China is testing the e-CNY.

“We have been exploring [CBDC] which is at the core of the monetary system,” Carstens said.

Since a CBDC has exposure at both the wholesale and retail levels, these projects face many concerns, such as cybersecurity, Carstens said.

“CBDC just cannot fail,” he said. “Imagine a world in an economy that depends on CBDC. It would be tremendously bad for the central bank if at some point the system is down. Therefore, we need to anticipate many different aspects of the project.”

Hong Kong’s main lesson from FTX’s collapse? More regulation is needed

As different central banks are developing CBDCs alone or in different groups, he does not believe there will be a global blueprint.

“We really want to have a standard, though, or at least a minimum amount of agreement among the different central banks, to assure the interconnectedness, to assure that the different systems talk to each other,” he said. “And that would allow seamless payments across borders” both at the retail and wholesale levels.

He also supports more regulation on cryptocurrencies, such as the new plan by the Hong Kong government to introduce a new regulatory regime for virtual assets in June next year.

The Hong Kong government is keen on introducing proper regulations to develop the city as a digital asset hub, even after cryptocurrency exchange FTX filed for bankruptcy with debt in the billions of US dollars.

“These events remind us that many of these cryptocurrencies are not really currencies,” Carstens said. “They are not money. Money implies a vehicle that is a good means of payment with deposit of value and good unit of account. These cryptocurrencies have not fulfilled those roles at the base, they have been speculative assets.”

He thus said regulation will be important, as many of these failure cases showed.

“We need to beef up the regulatory aspects,” he said. “It is very important to have investor protection guidelines. What is very regretful is that in many of these experiments, we have found up to millions of people are affected. Therefore, that is an issue that from a public policy point of view certainly requires to be addressed.”