Ukraine invasion: Swift ban, sanctions cut Russian economy from the world. Will China’s yuan payment system offer a lifeline?

Sanctions on Moscow are likely to accelerate connection and transactions between Chinese and Russian payment systems

But cooperation between China’s central bank and its Russian counterpart could threaten the Chinese economy, analysts warn

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Banning Russia from the Swift financial messaging system may increase use of China’s alternative CIPS network. Photo: Bloomberg

Published: 10:30pm, 1 Mar 2022Updated: 1:08pm, 9 Mar 2022

China is unlikely to allow Russian banks banned from the Swift financial messaging system to use its own cross-border payment network to circumvent sanctions, as Beijing is cautious about provoking punitive action from the United States and European Union, analysts said.

The US and its Western allies have decided to exclude selected Russian banks from Swift as part of a package of sanctions aimed at pressuring Moscow to abandon its invasion of Ukraine.

Banning Russia from the financial messaging system means Russian banks can no longer use it to arrange payments with foreign financial institutions.

As a result, analysts said China’s Cross-Border Interbank Payment System (CIPS) is likely to become more important for trade settlement between China and Russia.

Shares of leading Chinese companies involved in developing payment infrastructure jumped early this week on news Russian banks would be booted from the Swift system.

“China will try to officially maintain the status quo regarding its trading relations with Russia,” said Igor Szpotakowski, head of research at the Chinese Law Association and Yenching scholar at Peking University. “As far as we now know CIPS will be a temporary alternative to Swift.”

CIPS relies on the Swift system for cross-border messaging, but it has the potential to operate independently and have its own direct communication line between financial organisations.