CIPS – China’s Cross-Border Interbank Payment System and Its Role Within the RMB Internationalization Process

Abstract

Ever since the global financial crisis of 2008-9, that exposed the weakness of the international monetary system due to its dependence on the US dollar as leading global currency, the Chinese leadership undertook a broad scope of efforts to elevate the RMB to the status of an international reserve currency and to end the dominance of the US dollar. These efforts included the promotion of the RMB in international payments, the construction of a global RMB financial infrastructure and networks and the push for reformation of the international monetary system. The integral effort within the construction of a global RMB financial infrastructure was the creation of China’s own cross-border interbank payment system (CIPS). Interlinked with other measures to internationalize the RMB, CIPS helped to accomplish a surge in the use of RMB as international payment currency within less than 2 years after it became fully operational in 2018. CIPS was designed along the examples of the current market leading payment systems CHIPS and SWIFT and it utilizes their operational features that are already deeply imbedded within the global financial system. By using key literature in English and Chinese, as well as evaluating historical precedents and economic data, this paper aims to assess the RMB’s role in international foreign exchange reserves and payments, its challenges in finding global acceptance, and how international usage of the RMB can be improved further.

Keywords: China, CIPS, RMB internationalization