International Payments: Yuan Slips Further Down The Rankings
The yuan continues to lose importance in global payment transactions - a setback for China, which wants to challenge the global financial order with its own systems.
The yuan has been steadily losing its appeal as a global means of payment since August last year. At that time, 4.74% of global payments were still processed in the Chinese currency. Almost a year later , only 2.89 percent of international settlements are still in Chinese. The yuan plummeted from the fourth most important currency to the sixth most important, behind the US dollar, euro, pound, yen and Canadian dollar.
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The state economic magazine Caixin argues that the declining importance of the Chinese currency is explained by the fact that more and more transactions are not taking place via SWIFT, but via the Chinese competitor system CIPS. Pan Gongsheng, Governor of the People's Bank of China, even claims that the yuan is the third largest payment currency when CIPS transactions are included. But instead of overtaking Western currencies without catching up with them, the battle of the currencies is shifting to a battle of the systems.
CIPS cannot replace SWIFT
China praises its Cross-Border Interbank Payment System (CIPS) as the key to making the yuan the global currency. In 2024, 175 trillion yuan, around 24.6 trillion US dollars, flowed through CIPS. The volume grew by 43 percent compared to the previous year, an apparent triumph. But next to SWIFT, the titan of global payment transactions, CIPS looks like a dwarf. SWIFT processes 1825 trillion US dollars a year, over 70 times more than CIPS. Every day, CIPS counts 26,000 transactions, while SWIFT transmits 42 million messages, which corresponds to an annual figure of 15.33 billion. CIPS therefore achieves less than one percent of the SWIFT transaction volume.
Networking tells a similar story. CIPS connects 174 direct and 1509 indirect participants, a total of 1683 financial institutions from 187 countries. SWIFT spans over 11,000 institutions in more than 200 countries, a network that far outstrips CIPS. Worse still, 80 percent of CIPS transactions go through SWIFT messages, an admission that China cannot bypass the Western system. While CIPS is gaining a foothold in regions such as Asia or along the Belt and Road Initiative, it remains a niche player. The figures show that CIPS is less a competitor than an appendage to SWIFT, whose size is inflated by transactions between China and Hong Kong or with sanctioned countries such as Russia. The messages within the SWIFTS system between Mainland China and Hogkong accounted for almost 76% of total yuan movements in May. However, these are basically intra-Chinese financial movements, as Hong Kong, as a special administrative region, is de facto part of China.
In the proclaimed "battle of the systems", the CIPS is clearly losing.
Nothing works with CIPS without SWIFT
China is selling its Cross-Border Interbank Payment System (CIPS) as a liberating move to make the yuan independent of Western systems. But the truth is bitter. Of all the transactions processed by CIPS in 2024, 80 percent are via messages from SWIFT, the global standard for banking communications.
If a company in Europe orders machines from China and wants to pay in yuan, the company's European bank sends an instruction, comparable to an email, which specifies exactly where the money should go. This instruction is sent via SWIFT because its network of over 11,000 banks in more than 200 countries speaks the language of the global financial system. CIPS handles the actual transfer, i.e. moving the money, but without SWIFT's messages, the instructions are missing.
A message is the instruction for the money transfer, while a transaction is the transfer itself. SWIFT delivers 42 million such instructions every day, while CIPS, with its 1683 participants, including 174 direct participants, handles only 26,000 transactions per day. Only 20 percent of CIPS transactions use proprietary messages, mostly between Chinese banks or partners along the Belt and Road Initiative. SWIFT remains indispensable for global payments, for example to Europe or North America.
CIPS is therefore not an independent system, but an appendage of SWIFT. China has created a mechanism for yuan payments, but it is attached to the Western network and undermines its independence, while its volume is artificially inflated by internal flows between China and Hong Kong or geopolitical transactions with countries such as Russia.
CIPS as a lifeline for Russia
China praises CIPS as a lifeline for countries that want to escape Western sanctions. Russia, partially excluded from SWIFT, appears to be the ideal partner. In 2023, bilateral trade between China and Russia reached USD 240 billion, a growing proportion of which was settled in yuan via CIPS, for example for oil or gas deliveries. These transactions make the CIPS volume of 24.6 trillion US dollars in 2024 appear larger than it is globally relevant. But even in this geopolitical gambit, CIPS remains a weak player, trapped in the shadow of SWIFT.
A Russian bank transferring yuan for oil to a Chinese company goes through CIPS, but 80 percent of the time that bank uses SWIFT messaging because global banks, even in Asia, rely on SWIFT's network. This is where the secondary sanctions trap strikes. Any bank that trades with sanctioned Russian institutions via CIPS risks penalties from the USA, such as exclusion from SWIFT. Without SWIFT messages, communication with the global financial system breaks down.
Transfers between Russia and China can therefore only be handled by banks that are not part of the SWIFT network, i.e. potentially small, regional or local banks that do not have the organizational structure to handle large, international transactions.
As a result, Russia is using an opaque system of third countries, wallets and gold shipments to orchestrate the flow of goods and money, driving up costs and reducing profits.
The threat of secondary sanctions shows that CIPS does not operate independently even in sanction-threatened areas such as Russia. While China-Hong Kong transactions inflate the volume, Russia payments are geopolitically motivated and limited. In 2024, such transactions accounted for a significant but unquantified portion of CIPS activity. They reflect less the strength of the yuan than the plight of sanctioned countries. CIPS remains a niche tool, no substitute for SWIFT, incapable of circumventing the Western financial order without endangering itself.
mBridge remains a digital niche project
China is relying on mBridge, a project for cross-border payments with digital yuan, to reduce its dependence on SWIFT. Since 2021, the central banks of China, Hong Kong, Thailand, the Emirates and Saudi Arabia have been testing this platform, which uses blockchain to process payments without Western systems. In 2024, mBridge processed 22 billion yuan worth of transactions, a drop in the bucket compared to CIPS' 175 trillion yuan or SWIFT's 1825 trillion US dollars. The platform only connects five countries so far, while SWIFT spans over 200 countries. In addition, mBridge remains a test field that primarily addresses belt-and-road partners, not global financial centers such as London or New York.
CIPS and the yuan as a false giant
Huang Shijin, President of SWIFT Asia, calls the crash of the yuan in global payments temporary. CIPS is less of an alternative than a supplement. China is trying to create an ecosystem here, but global networking makes it impossible to use this system without SWIFT and without taking the West into consideration. This would only be conceivable in a world as divided as it was during the Cold War.
Even though the Caixin article appeared in its international edition, the intended audience is more likely to be the domestic audience and perhaps global policymakers who are watching China's ambitions despite the unchallenged dominance of the US dollar.
Both CIPS and the yuan are illusory giants: The closer you look at it, the smaller it becomes.
The rhetorical finger exercises do not conceal the fundamental problems of the yuan, which stands in the way of internationalization: The lack of political independence of the central bank, which goes hand in hand with the primacy of the party, the compartmentalized financial system, the lack of free convertibility of the currency and the rigid foreign exchange controls. In the battle of the systems, CIPS is a David that cannot pose the slightest threat to the SWIFT Goliath at the moment.