China, the central bank and SWIFT: What is brewing there?

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

The international payments network SWIFT has founded a financial gateway company in China together with the clearing center and the research institute for digital currencies of the People’s Bank of China (PBoC). This emerges from a report by the Chinese portal Qixin. The news is surprising insofar as China has recently been working on alternative systems for international transactions that are more of a competition for SWIFT. China has multiple goals with its central bank digital currency (CBDC). One of these has always been a lower dependency on the western-style interbank system SWIFT.

The source, to which other current media reports also refer, mentions Finance Gateway Information Service Limited as a newly founded company. It was registered in Beijing on January 16 with an initial capital of 10 million euros (12 million US dollars). Accordingly, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) contributed 55 percent 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 internationalize the yuan increasingly

At the moment, one can only speculate about the scope and purpose of this joint venture. Apart from the entry 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 created a wholly foreign-owned company in China. In this case, too, the motives are not entirely clear. One reason could be to support the internationalization of the Chinese yuan more actively. That was what a report from China Daily suggested at the time.

In any case, the fact is that most cross-border transactions in China are carried out 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 meaningless compared to SWIFT. However, with the Universal Digital Payment Network (UDPN) initiated by the Chinese Blockchain Service Network (BSN), a highly ambitious project is in the starting blocks. It could significantly increase the importance of China in international transactions.

The PBoC recently conducted several city-wide tests of the central bank’s digital currency in Shenzhen and Suzhou. In total, the country has issued about $ 10 million worth of digital yuan to its citizens. They can spend the money at more than 20,000 merchants.

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