SWIFT Photo: CFP

Shares related to the China-initiated Cross-border Interbank Payment System (CIPS) and the digital currency surged on Chinese A-share market on Monday, putting the back-up choice for cross-border settlements in the spotlight after the West imposed sanctions on Moscow, excluding Russia from the SWIFT interbank system amid the ongoing Russia-Ukraine conflict. 

When trading closed on Monday, the digital currency concept segment had gained 3.59 percent, with its total value rising 870 million yuan ($137.94 million). Related fintech stocks Forms Syntron and Infosec hit their trading limits of 10 percent rise in the morning session. 

The CIPS concept segment jumped 2.71 percent while stocks related to China-Russia trade were up 4.25 percent. 

As the SWIFT curbs may create disruptions for China-Russia trade or capital flows in the short term, the establishment of a settlement system in the yuan and other diversified ways to ensure financial market security are becoming urgent, Wang Peng, an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China, told the Global Times on Tuesday.

"The crisis gives us a warning that there should be many ways to make plans ensuring trade safety, currency trading safety and financial system safety," Wang said.

The Chinese Foreign Ministry said on Monday that China opposes illegal unilateral sanctions on Moscow and will continue to carry out normal trade cooperation with Russia.

Asked about what some have described as the "financial nuclear option" at a regular press briefing in Beijing, Wang Wenbin, a spokesperson for the foreign ministry, said that China opposes the use of sanctions to solve problems, and is even more opposed to unilateral sanctions that have no basis in international law.

As the SWIFT system is primarily for dollar settlements, Chinese experts noted one important method to offset the SWIFT exclusion impact is to settle foreign trade payments in currencies other than the US dollar.

An analysis by China Securities said on Sunday that the SWIFT sanctions on Russia would have a limited impact on China and the move is most likely to speed up Chinese yuan's internationalization. 

In 2020, 17.5 percent of China-Russian trade was settled in yuan, rising from 3.1 percent in 2014, according to China Securities. 

"The new transactions of natural gas [between China and Russia] are being shifted to euro-based settlement, regarded as a gradual transition from dollar settlement to settlement in home currencies," China Securities said. 

The two countries have signed bilateral currency swap agreements multiple times. China Securities said that they are expected to establish a settlement system in their home currencies to speed up de-dollarization, while the yuan's internationalization is to gain momentum. 

The China-launched CIPS serves financial institutions in the cross-border yuan and offshore yuan businesses, a significant financial tool to the improve yuan's global clearing service. 

The young CIPS now has 75 direct participants, but only one yuan clearing bank under Industrial and Commercial Bank of China is based in Moscow. 

Wang suggested that point-to-point trading and digital currencies are all prospective ways to solve the problems.