Chinese banks urged to abandon SWIFT as US sanctions loom

BEIJING (Reuters) – China should prepare for possible U.S. sanctions by increasing the use of its own financial messaging network for cross-border transactions on the mainland, Hong Kong and Macao, according to a report by the Bank’s investment banking unit. China.

Chinese state lenders have been renewing contingency plans in anticipation of US legislation that could penalize banks for serving officials who implement the new national security for Hong Kong, Reuters reported earlier this month.

Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium-based SWIFT system would also reduce the exposure of China’s global payment data to the United States, BOC International (BOCI) said in the report, which was co-author of a former currency regulator.

The bank’s chief economist, Guan Tao, was previously director of the international payments department of the State Administration of Foreign Exchange (SAFE).

The report looked at possible steps the United States could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to conduct financial transactions.

“A good blow to the enemy will save you from hundreds of blows from your enemies,” the report wrote, amid deteriorating relations between the world’s two largest economies. “We need to prepare ahead of time, mentally and practically.”

China launched the CIPS clearing and settlement services system in 2015 to help internationalize the use of the yuan. Supervised by the central bank, CIPS said it processed 135.7 billion yuan ($ 19.4 billion) per day in 2019, with the participation of 96 countries and regions.

The report says that if the United States were to take extreme action to cut some Chinese banks’ access to dollar settlements, China should also consider stopping using the US dollar as an anchor currency for its currency controls.

He also recommended that China develop legislation similar to the European Union Blocking Statute, which allowed the EU to maintain trade and economic relations with Iran, a country to which US sanctions apply.

CFO of Huawei Technologies of China [HWT.UL], the world’s largest producer of telecommunications equipment, is currently fighting extradition from Canada to the United States, where it is accused of bank fraud for deceiving HSBC Holdings Plc (HSBA.L) about Huawei’s relationship with a company operating in Iran, putting HSBC at risk of fines and penalties for violating U.S. sanctions.