CHINA should prepare for potential U.S. sanctions by increasing use of its own financial messaging network for cross-border transactions, according to a report from the investment banking unit of Bank of China.

Domestic banks in China have been revamping contingency plans in anticipation of U.S. legislation that could penalize banks for serving officials who implement the new national security for Hong Kong, Reuters reported earlier this month.

Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium-based SWIFT system would also reduce exposure of China’s global payments data to the United States, BOC International (BOCI) said in the report, which was co-authored by a former foreign exchange regulator.

The bank’s chief economist Guan Tao was previously a director of the international payments department of the State Administration of Foreign Exchange (SAFE).

The report looked at potential measures the United States could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to make financial transactions.

China launched the CIPS clearing and settlement services system in 2015 to help internationalize use of the yuan. Supervised by the central bank, the CIPS said it processed 135.7 billion yuan (US$19.4 billion) a day in 2019, with participation from 96 countries and regions.

The report said that if the United States were to take the extreme action of cutting off some Chinese banks’ access to dollar settlements, China should also consider stopping the use of the U.S. dollar as the anchor currency for its foreign exchange controls.

It also recommended that China develop legislation similar to the European Union’s Blocking Statute, which allowed the EU to sustain trade and economic relations with Iran, a country targeted by U.S. sanctions. (SD-Agencies)