China, the central bank and SWIFT: What’s brewing?

China, the central bank and SWIFT: What’s brewing?

Some efforts have already been made in China to emancipate itself from the SWIFT payment network. Now, however, a source has emerged that announces a joint venture between the Chinese central bank and the payment network. The motives are still in the dark.

The international payment network SWIFT has set up a financial gateway company in China together with the People’s Bank of China’s (PBoC) Clearing Center over Crypto Bull and Digital Currency Research Institute. This is according to a report by the Chinese portal Qixin. The news is surprising in that China has recently been working on alternative systems for international transactions that are more of a competitor for SWIFT. China is pursuing several goals with its digital central bank currency (CBDC). One of them has always been to reduce dependence on the Western-style interbank system SWIFT.

The source, which is also referred to in other current media reports, mentions Finance Gateway Information Service Limited as a newly founded company. It was registered in Beijing on 16 January with a share capital of 10 million euros (12 million US dollars). According to the report, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) contributed 55 per cent of the capital through a subsidiary in Hong Kong. The China National Clearing Center (CNCC), a wholly-owned domestic settlement company of the PBoC, holds 34 percent of the shares in the new company.

China wants to increasingly internationalise the yuan

At the moment, one can only speculate on the scope and purpose of this joint venture. Apart from the registration protocol mentioned, there is currently no further information. Neither the PBoC nor SWIFT have commented on the matter yet. The joint venture comes over a year after SWIFT established a wholly foreign-owned company in China. In this case, too, however, the motives are not entirely clear. One reason could be to more actively support the internationalisation of the Chinese yuan. This is what a report by China Daily speculated at the time.

In any case, the fact is that most of China’s cross-border transactions are conducted in US dollars. Only about two percent of the international transactions processed via SWIFT are in yuan. China’s own payment system CIPS is practically insignificant compared to SWIFT. However, the Universal Digital Payment Network (UDPN) initiated by the Chinese Blockchain Service Network (BSN) is a highly ambitious project in the starting blocks. It could significantly increase China’s importance in international transactions.