With the economic and political battles between the U.S. and China heating to a boil, one of China's top banks is urging financial institutions (FIs) to cut their use of the SWIFT financial messaging network for cross-border transactions. The bank’s messaging applies to Hong Kong and Macau as well.
With U.S. sanctions against China looming, state lenders there have reportedly been developing contingency plans.
According to the Bank of China’s new report, sanctions could have the U.S. adopting measures such as locking Chinese banks out of SWIFT, Reuters reported. SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is the main network used by FIs to process transactions.
The bank’s report commented: “A good punch to the enemy will save yourself from hundreds of punches from your enemies.”
China’s invasion of Hong Kong has ramped up tensions between the two countries by giving even more ammunition to the superpower’s critics in the U.S. “We need to get prepared in advance, mentally and practically” for sanctions, the Bank of China said.
According to Reuters, the report urges increased use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium-based SWIFT system. In theory, this would help protect China’s global payments data from possible U.S. actions.
SWIFT is the world’s largest electronic payment messaging network, although it does not itself do any of the funds transfers.
“All major reserve currencies — the euro, the dollar and the pound sterling — plan to adopt ISO 20022 within the next two to five years, and several countries have already instituted the standard,” Sheikh said. He added that, as market infrastructures in many major countries use the network, “we are receiving more inquiries from banks with questions about how to accelerate their own move to ISO 20022.”
Gaining richer payments data is one of the key selling points for the new standard.