China has launched its cross-border renminbi (RMB) payments system, marking a big step back from the conventional financial industry’s use of the SWIFT secure messaging system.

The new China International Payments System (CIPS) aims to boost international use of the Chinese currency but it is incompatible with SWIFT which, with its KYC Registry and other compliance services, has been considered a potentially very useful platform for co-ordinating international efforts to curb money laundering and illicit financial flows.

Incompatible

SWIFT’s systems are incompatible with China’s domestic payments system, not least because the latter only supports Chinese characters.

In mid-September, China’s central bank sent instructions to 19 banks – including the Chinese operations of HSBC, Citibank and Standard Chartered – that it would be introducing CIPS.

Several analysts say that as well as wanting a payments system compatible with RMB transactions, China is seeking to reduce its reliance on SWIFT, which the Chinese see as dominated by US and European banks.

Russian proposals

Earlier this year, Moscow said it was contemplating leading attempts to create an alternative to SWIFT after an EU proposal to exclude Russia from the system over the conflict in Ukraine.

“If there is no Swift, there is no banking relationship,” said a Russian banker at the time.