CHIPS (Clearing House Interbank Payments System) is a privately operated electronic payments system run by The Clearing House Payments Company, owned by a consortium of large commercial banks. It settles a substantial share of the world's large-value, cross-border US dollar transactions, particularly those tied to trade finance, foreign exchange, and Eurodollar funding.
CHIPS differs from Fedwire, the real-time gross settlement system operated by the Federal Reserve. While Fedwire settles each payment individually and instantly in central bank money, CHIPS uses a netting algorithm: it continuously matches and offsets payment instructions among participants throughout the day, then settles the net positions, which dramatically reduces the liquidity each bank must hold. Final settlement occurs through Fedwire accounts held at the Federal Reserve Bank of New York.
Participation is limited to a small group of banks — typically a few dozen — including major US institutions and the US branches of large foreign banks. Other banks worldwide access CHIPS indirectly through correspondent relationships with these participants, which is why CHIPS sits at the structural core of the dollar-based global financial system.
For political researchers, CHIPS matters for three reasons:
- Sanctions enforcement. Because nearly every cross-border dollar payment touches a CHIPS participant, US authorities (OFAC, DOJ) can effectively police global dollar flows. Cutting a foreign bank off from CHIPS-accessible correspondents is a powerful coercive tool.
- Dollar dominance debates. CHIPS is often cited in discussions of US "weaponization" of the dollar and in arguments for alternatives such as China's CIPS (Cross-Border Interbank Payment System) or Russia's SPFS.
- Systemic risk. Its concentration of participants and daily settlement volumes make it critical financial infrastructure under the supervisory frameworks set after the 2008 crisis.
CHIPS should not be confused with the CHIPS and Science Act of 2022, a US semiconductor industry law sharing the same acronym.
Example
In 2014, BNP Paribas paid a roughly US$8.9 billion settlement to US authorities for processing transactions involving Sudan, Iran, and Cuba through US dollar clearing channels including CHIPS participants.
Frequently asked questions
SWIFT is a messaging network that transmits payment instructions; CHIPS actually moves and settles the dollar value between banks. A typical cross-border payment uses SWIFT messages and CHIPS (or Fedwire) settlement.
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