China’s banks urged to switch away from SWIFT as US sanctions over Hong Kong national security law loom

US legislation could penalise banks for serving officials who implement the new national security for Hong Kong

China launched the Cross-Border Interbank Payment System (CIPS) clearing and settlement services system in 2015 to help internationalise use of the yuan

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A Bank of China report looked at potential measures the United States could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to make financial transactions. Photo: Shutterstock

Published: 4:22pm, 29 Jul 2020Updated: 4:22pm, 29 Jul 2020

China should prepare for potential sanctions by the United States by increasing use of its own financial messaging network for cross-border transactions in the mainland, Hong Kong and Macau, according to a report from the investment banking unit of the Bank of China.

Chinese state lenders have been revamping contingency plans in anticipation of US legislation that could penalise banks for serving officials who implement the new national security law for Hong Kong.

Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium-based SWIFT system would also reduce exposure of China’s global payments data to the US, BOC International said in the report, which was co-authored by a former foreign exchange regulator.

The bank’s chief economist, Guan Tao, was previously a director of the international payments department of State Administration of Foreign Exchange.

A good punch to the enemy will save yourself from hundreds of punches from your enemies

Bank of China report

The report looked at potential measures the US could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to make financial transactions.

“A good punch to the enemy will save yourself from hundreds of punches from your enemies,” the report wrote, amid deteriorating relating between the world’s two largest economies. “We need to get prepared in advance, mentally and practically.”

China launched the CIPS clearing and settlement services system in 2015 to help internationalise use of the yuan. Supervised by the People’s Bank of China, CIPS said it processed 135.7 billion yuan (US$19.4 billion) a day in 2019, with participation from 96 countries and regions.