Hong Kong’s Pivotal Role in RMB Internationalization

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HSBC Hong Kong announces joining CIPS as a direct participant during Sibos 2024, held in Beijing for the first time. (Source: Screenshot from HSBC Sibos 2024 Highlights)

Executive Summary:

  • The People’s Republic of China (PRC) continues to use Hong Kong to test policies and build support for the internationalization of its currency, the renminbi (RMB). The city is now the world’s largest offshore RMB clearing center.
  • The Cross-border Interbank Payment System (CIPS) is the PRC’s intended answer to the global financial messaging system SWIFT, but its transaction volume is only a ninth that of SWIFT’s and it still relies on SWIFT for messaging with non-direct participants.
  • CIPS and SWIFT have very different governance structures. SWIFT is governed by an elected international board, whereas CIPS is operated under the PRC’s central bank, the People’s Bank of China.
  • HSBC Hong Kong has become the latest institution to announce direct participation in CIPS as well as the system’s largest foreign direct participant, citing increasing demand for settling transactions in RMB.

HSBC Hong Kong, the city’s largest bank, in late October announced its direct participation in the Cross-Border Interbank Payment System (CIPS) after nine years of indirect involvement. According to David Liao (廖宜建), Asia Pacific Co-CEO of HSBC, the move responds to growing demand for renminbi (RMB) trade solutions (HSBC, October 20; Ming Pao, October 21). This echoes the views of analysts, who have argued that there is significant growth potential in overseas markets (Wen Wei Po, October 27). On joining CIPS, HSBC Hong Kong became the system’s largest foreign direct participant. [1]

Hong Kong is the largest offshore RMB clearing center, making it an ideal testbed for Beijing to internationalize its currency and eventually challenge the global dominance of the US dollar. While it is far from displacing the dollar, its position has grown dramatically in recent years, with particular focus on certain world regions, such as Southeast Asia. Settling transactions in RMB is also increasingly in favor for entities who wish to avoid the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, for reasons that include circumventing US-led sanctions.

Growing RMB Cross-Border Payment Infrastructure

CIPS was launched in 2015 under the authorization of the People’s Bank of China (PBOC), the PRC’s central bank. Since then, it has experienced remarkable growth and now connects over 150 direct participants and 1,413 indirect participants across 117 countries and regions. In 2023 alone, CIPS processed over 6 million cross-border RMB transactions totaling RMB 123,000 trillion ($17,200 trillion)—a year-over-year increase of 50.3 percent in volume and 27.3 percent in value (PBOC, 2024, p. 18). [2]

CIPS’s mission is encapsulated in its slogan: “Wherever there is RMB, there is CIPS service (哪里有人民币，哪里就有CIPS服务).” This mission is clearly reflected in the system’s original English name, “China International Payment System,” which is still preserved in the name of the entity that manages the system, the China International Payment Service Co. (Shanghai Finance, October 2015; Shanghai Municipal Government, July 18, 2023). It is even more clear in the Chinese name for the system, “人民币跨境支付系统,” which translates to “Renminbi Cross-Border Payment System” (CIPS, October 31).

CIPS represents the PRC’s nascent efforts to establish an alternative infrastructure to SWIFT, the world’s dominant payments system. The two currently maintain a cooperative relationship through a 2016 memorandum of understanding (MOU), with CIPS relying on SWIFT for messaging with non-direct participants (Swift, March 25, 2016). However, a fundamental distinction exists between the two systems’ governance structures. While SWIFT is technically an independent organization, with an international governing board that is elected on a three-year rotation, CIPS functions under the PBOC’s direct centralized control. [3]

Hong Kong: Gateway for RMB Internationalization

RMB internationalization, first articulated at the highest level in the PRC during the 2014 Central Economic Work Conference, has evolved into a cornerstone of Beijing’s national strategy for financial sector openness (Xinhua, December 11, 2014, YiCai, May 22, 2023).

In recent years, Hong Kong has been instrumental in advancing RMB internationalization. The international financial hub is now the largest offshore RMB clearing center, handling about 83 percent of global payments (SingTao, October 15). Prior to becoming a direct CIPS participant, HSBC Asia Pacific Co-CEO David Liao already had emphasized Hong Kong’s “undoubtable (不容置疑)” position as the central node for RMB internationalization, advocating for leveraging the city’s financial advantages to strengthen RMB’s international standing (Phoenix News, June 20).

The system’s expansion closely aligns with the PRC’s “One Belt One Road (OBOR; 一带一路)” initiative, serving as the “main channel (主渠道)” of cross-border RMB payment for 82 direct participating OBOR countries, with operations covering 131 OBOR countries by 2023 (CIPS, October 19, 2023). Association of Southeast Asian Nations (ASEAN) countries have shown particular enthusiasm recently, recording over 50 percent growth in cross-border RMB transactions in 2023 (Xinhua, October 10).

As a key participant in OBOR, Hong Kong initially positioned itself as a “super-connector (超级联系人),” facilitating professional financial services while channeling funds, resources, and talent to the PRC. This role evolved to that of “super value-adder (超级增值人)” in 2023, expanding Hong Kong’s contribution to both OBOR and the opening up of the PRC’s financial sector (People’s Daily, August 12).

HSBC Hong Kong’s direct CIPS participation can be seen as aligning with these national priorities. The company’s announcement coincided with the annual SWIFT International Banking Operations Seminar (Sibos), held in the PRC this year for the first time. Yi Yong (殷勇), Beijing’s deputy Party secretary and mayor, claimed this “demonstrated the PRC’s firm determination to open up its financial sector to the world (展示了中国金融对外开放的坚定决心).” At the meeting, the PBOC affirmed its commitment to support qualified foreign financial institutions joining CIPS and facilitating cross-border RMB clearing (Xinhua, October 23). The central bank has also recognized Hong Kong as an “important region to attract overseas funds to accumulate (吸引海外资金积聚沉淀的重要区域),” underscoring its significance in RMB internationalization. [4]

CIPS rose to international prominence following the exclusion from SWIFT of major Russian banks in 2022 in the wake of Russia’s invasion of Ukraine. These banks turned to CIPS while developing their own global payment infrastructure independent of Western systems (BBC, May 4, 2022; Wenweipo, October 27). Hong Kong’s role in RMB internationalization can be seen as part of a broader strategy of helping PRC firms circumvent Western sanctions.

The United States has imposed sanctions on various Hong Kong-based institutions for alleged support of Russian interests (US Department of the Treasury, May 1; June 12). However, these actions do not seem to have impacted Hong Kong’s developing relations with Russia. Anatoly Kargapolov, Russia’s Consul General in Hong Kong, recently characterized relations as part of his country’s “comprehensive partnership and strategic cooperation” with the PRC. Noting “remarkable growth” in bilateral trade, he advocated for Hong Kong’s expanded cooperation with Commonwealth of Independent States (CIS) countries—a Eurasian grouping of former Soviet states (South China Morning Post, October 28).

Conclusion

HSBC Hong Kong’s direct participation in CIPS represents a significant step in RMB internationalization. The bank’s longstanding support for the PRC’s and Hong Kong’s financial development has received endorsement from PRC officials, including Xia Baolong (夏宝龙), Director of the Hong Kong and Macao Work Office (HMO; 国务院港澳事务办公室主任). The move also aligns with the PRC’s “high-level opening up (高水平对外开放)” strategy (HMO, October 18).

As geopolitical tensions persist, more foreign banks may gravitate toward CIPS, potentially reshaping the global financial system. Hong Kong’s position as a testing ground for RMB internationalization will therefore increase in importance in Beijing’s broader strategy to enhance the currency’s global status.

Notes

[1] HSBC China (汇丰银行(中国)) was among the first batch of CIPS direct participants (CIPS, October 8, 2015; PBOC, October 8, 2015). The first bank with foreign capital to join CIPS as an offshore direct participant was Standard Chartered Hong Kong in 2023.

[2] While significant, it remains small relative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which includes over 11,000 institutions in more than 200 countries and regions, and whose annual transaction volume, while not officially disclosed, is around $150,000 trillion—almost nine times higher than that of CIPS (Payspace Magazine, October 28).

[3] Scott, Susan V.; Zachariadis, Markos. The Society for Worldwide Interbank Financial Telecommunication (Swift): cooperative governance for network innovation, standards, and community. (New York, NY: Routledge, 2014). pp. 1, 35. doi:10.4324/9781315849324. Although the United States is able to exert pressure on the organization, US institutions do not dominate its governance.

[4] RMB Internationalization Report 2024 [人民币国际化报告(2024)] (Beijing: PBOC, 2024), p. 33. See also: China Brief, January 19.