HSBC's move to CIPS: A strategic boost to RMB's global expansion

Editor's note: Matteo Giovannini, a special commentator on current affairs for CGTN, is a finance professional at the Industrial and Commercial Bank of China, a Non-Resident Associate Fellow at Center for China and Globalization (CCG) and a member of the Global Young Leaders Dialogue. The article reflects the author's views and not necessarily those of CGTN.

The recent announcement at financial service event SIBOS 2024 in Beijing that HSBC Hong Kong has joined China's cross-border interbank payment system (CIPS) marks a milestone in global finance. This strategic alignment by a leading trade finance institution signifies both a leap forward for CIPS and a crucial step in China's drive to expand the international use of its renminbi (RMB). As the world's second largest economy seeks alternatives to the SWIFT payment system amid evolving trade dynamics, the inclusion of HSBC highlights how global financial giants are recognizing and responding to China's economic influence.

CIPS, established in 2015, is more than just a domestic payment network for China. It was developed specifically to facilitate cross-border RMB payments, allowing foreign and domestic institutions to trade and transact directly in the Chinese currency. While SWIFT continues to be the prevailing global payment mechanism, CIPS offers a burgeoning alternative that's purpose-built to support the RMB.

With HSBC Hong Kong now as a direct participant, the CIPS network gains substantial credibility on the international stage. HSBC, headquartered in London but with a historical and strategic stronghold in Asia, has a unique position that merges the East with the West. This integration not only reinforces HSBC's role in global trade finance but also enhances CIPS's appeal to companies and financial institutions worldwide, especially those in Asia and Europe. The direct involvement of a financial giant of this caliber will likely encourage other prominent banks to follow suit, widening the scope of international adoption and easing the path for companies looking to trade and invest using the RMB.

The benefits of HSBC's direct participation in CIPS are multifaceted. At a fundamental level, HSBC's integration will reduce friction in RMB-denominated trade and investment flows by streamlining transactions and lowering associated costs. By circumventing intermediary steps typically involved in cross-border payments through SWIFT, CIPS provides a more efficient route, thereby reducing both time and expense. This increased efficiency is vital in a global market where speed and cost-effectiveness are key determinants of competitiveness. For international companies, particularly those that frequently engage with Chinese businesses, this development translates to more accessible, transparent, and rapid transactions in RMB. It's an attractive proposition for companies looking to cut transaction costs, manage currency risks, and simplify the administrative burdens of currency conversions.

Additionally, given that HSBC is one of the largest trade finance banks in the world, its presence in CIPS could push other multinational corporations to consider the RMB for their trading needs, potentially leading to greater international adoption of the currency.

The global financial system has largely relied on SWIFT as a means to transact across borders, but the dominance of such infrastructure comes with its limitations. In recent years, there has been a growing sense among some nations that alternatives to SWIFT are necessary, not only due to efficiency concerns but also in response to geopolitical considerations. The reliance on a Western-centric system has its vulnerabilities, as illustrated by the disconnection of certain countries and institutions from SWIFT due to sanctions or political pressures.

CIPS, in contrast, offers a route independent of Western geopolitical sway, making it an appealing option for countries and institutions looking to safeguard their financial autonomy. The addition of HSBC may incentivize other global financial institutions to join as direct participants, thereby supporting China's ambitions to establish CIPS as a viable, reliable, and neutral alternative to SWIFT.

China has long championed RMB internationalization as a core component of its economic strategy, and CIPS serves as a pivotal mechanism in that pursuit. An internationalized RMB provides numerous benefits, including reduced exchange rate risk for Chinese companies, lower transaction costs, and enhanced resilience against foreign currency volatility. It also aligns with China's Belt and Road Initiative, where trade and investment deals in RMB reduce dependency on foreign currencies.

All in all, HSBC Hong Kong's decision is a landmark moment that could accelerate RMB internationalization and strengthen China's position in global finance, while underscoring the country's long-term strategy of establishing a more diversified and resilient financial ecosystem.

In the years to come, the alignment of major financial institutions with Chinese-led initiatives will likely intensify, creating a more multipolar financial landscape. As CIPS continues to grow, its impact on the international stage will become more profound, marking a pivotal chapter in the ongoing evolution of global financial systems.

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