CHIPS

CHIPS

TOPIC: Economy

Context- Cutting some Russian banks’ access to SWIFT will give other geopolitical rivals, especially China, the excuse to promote digital versions of their own central banks’ money in global trade and finance.

Concept-

Clearing House Interbank Payments System:

• The Clearing House Interbank Payments System (CHIPS) is a private club of financial institutions.
• Its 43 members settle $1.8 trillion in claims every day using a pre-funded account at the Federal Reserve.
• They all maintain US offices, and are subject to US law, which makes it easier for authorities to catch and punish.
• The Clearing House Interbank Payments System (CHIPS) allows large interbank transactions in the U.S. to clear.
• CHIPS is slower but less expensive than the other major interbank clearing house known as Fedwire, making it more amenable to larger transactions that can take longer to clear.
• CHIPS works by netting debits and credits across transactions, providing both clearing and settlement services to its customer banks.
• There are two steps to processing funds transfers:
  • clearing and settlement.
  • Clearing is the transfer and confirmation of information between the payer (sending financial institution) and payee (receiving financial institution).
  • Settlement is the actual transfer of funds between the payer’s financial institution and the payee’s financial institution.
• To shrug off the yoke of CHIPS, China has readied its own Cross- Border Interbank Payment System.
  • CIPS settles international claims in yuan and can potentially run its own messaging network.