Thursday, May 25, 2023
China watchers have decried the emergence of the Cross-Border Interbank Payment System (“CIPS”) as a turning point in the move to dethrone the U.S. dollar. This Article situates CIPS, which clears and settles Chinese renminbi transactions, with other financial market infrastructures, drawing lessons from how those entities have thrived or failed.
In recent conversations, CIPS has been conflated with other infrastructures (e.g., the SWIFT payment messaging system) and currency trends (e.g., de-dollarization and sanctions evasion). However, a currency clearinghouse is very different than most financial institutions. For CIPS, the market-maker in the adjacent trading market is the Chinese government, a sovereign state that wields a monopoly over the renminbi. Although the global currency trading market exhibits competition, monetary sovereignty complicates the analysis of monopolization.
This Article’s primary contribution is to present a coherent theoretical framework for CIPS by synthesizing the treatment of currency clearinghouses across law, finance, and economics. The Article concludes that CIPS cannot, by itself, guarantee widespread acceptance of the renminbi.