Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
HSBC Hong Kong has recently become a direct participant in China’s international payments system, marking a significant step for the world’s largest player in trade finance. This move gives HSBC a key role in Beijing’s efforts to expand the use of the renminbi in global transactions. David Liao, co-chief executive of HSBC’s Hong Kong unit, announced the bank’s formal participation in China’s Cross-Border Interbank Payment System (Cips) at a conference in Beijing. Liao emphasized that the dominance of the US dollar in international transactions is gradually being diluted, and joining Cips will facilitate faster and cheaper payments using China’s currency for overseas companies.
This development highlights the important role that HSBC’s Hong Kong business is playing in supporting China’s policy objectives. At the same time, HSBC is undergoing a major restructuring that will separate its UK and Hong Kong units into distinct divisions aligned along east-west lines. Liao expressed his belief that there is still significant potential for the renminbi to expand its presence in international markets, given the evolving economic landscape that is challenging the traditional dominance of the US dollar.
China has been actively promoting Cips as an alternative to the Swift payments system, particularly in light of potential sanctions and isolation by the US amid geopolitical tensions. Analysts suggest that the US has weaponized finance and abused its control over the dollar payment system, prompting other countries to seek alternative cross-border payment mechanisms. Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University of China, noted that many international banks are exploring different payment systems to mitigate risks associated with overreliance on a single system.
Swift, a key player in facilitating global money transfers, has faced increased scrutiny following its decision to cut off a group of Russian banks in response to the conflict in Ukraine. China established the Cips system in 2015 as part of its efforts to internationalize the renminbi. The system has gained traction, especially with the participation of banks in countries involved in China’s Belt and Road initiative.
HSBC’s announcement at the Sibos conference, organized by Swift, underscores its prominent position in the global cross-border payments market. By becoming a direct participant in Cips, HSBC’s Hong Kong unit will gain the ability to settle payments in renminbi directly, further enhancing its capabilities in facilitating international transactions.
In his remarks at the conference, Liao emphasized that while there is no official policy goal to challenge the dollar’s position, there is still room for the renminbi to expand its presence in overseas markets. He pointed to changing economic dynamics in Asia, where increasing wealth and digitalization are driving greater trade and investment activities among Asian economies.
Lu Lei, deputy governor of the People’s Bank of China, expressed support for Chinese financial institutions using Swift, while also urging Swift to uphold principles of openness, fairness, and justice. The evolving landscape of international payments systems suggests a shift towards greater diversification and resilience in cross-border transactions.
Swift and Cips have become key players in the global payments ecosystem, each serving different needs and providing diverse options for financial institutions worldwide. While Swift maintains a broader reach with connections to institutions in over 200 countries, Cips offers a specialized platform for facilitating renminbi transactions and supporting China’s internationalization efforts.
As the international use of the renminbi continues to grow, driven by changing economic fundamentals and geopolitical dynamics, financial institutions are adapting to a new era of cross-border payments. The evolving landscape presents both challenges and opportunities for banks and policymakers seeking to navigate the complexities of global finance.
Additional reporting by Joseph Leahy in Beijing