As Western sanctions continue to cripple Russia’s economy, the country has had to find an alternative payment system as it was cut off by SWIFT – turning to China’s UnionPay.
Since the outbreak of the Russian-Ukrainian conflict, Russia’s $630 billion foreign exchange reserves have been curbed and more than $17 billion in assets have been observed confiscated from the country’s oligarchs.
Russian banks, including the country’s largest bank Sberbank, are now turning to China’s UnionPay and homegrown payment system Mir as a last-ditch attempt to settle international transactions after continued alienation from the West, with services such as PayPal, Visa, American Express and MasterCard already Suspended operations in the country.
UnionPay has established more than 2,500 partnerships with credit card payment institutions in Europe and the United States, covering more than 70 regions, allowing foreign credit cards to be processed through its payment system.
However, if UnionPay knowingly helps Russian banks circumvent ongoing sanctions, it could be subject to secondary sanctions from the West, as UnionPay is handling the issue with care.
Is Mir a viable alternative to SWIFT?
Similar to SWIFT, Mir is Russia’s electronic funds transfer payment system, established by the Central Bank of Russia in May 2017 to provide financial institutions with Mir-branded payment products, which are then used to provide credit, debit or other schemes to them client.
While pundits may cite the local Mir payment system as a worthy option, it has some limitations on its use. Specifically, Mir neither issues cards nor provides credit — only accepted in a dozen or so countries that are not major economic powers, such as Kyrgyzstan and Armenia.
UnionPay follows Visa in transaction volume, with a 40% market share. UnionPay accounts for 32%, higher than Mastercard’s 24%.
Is encryption still the solution for Russia?
Given the severe restrictions on the ability to harness the power of cryptocurrencies, Russia’s move to UnionPay is undoubtedly a last-ditch effort for the country’s banks.
As more and more cryptocurrency exchanges take their stance on cooperating with law enforcement agencies, while others simply block accounts of dubious accounts deliberately dealing with Russia and its oligarchs — amid the ongoing geopolitical crisis, The value of cryptocurrencies has become less reliable for the country.
“As we said, digital assets are being used as a way to try to circumvent the sanctions imposed on Russia by many countries around the world,” said ECB President Christine Lagarde.
However, Michael Mosier, deputy director of FinCEN, countered Lagarde’s claims about the lack of liquidity:
“You can’t flip a switch overnight and run a G20 economy on cryptocurrency,” he said. A previous Chainalysis report found that using a “free-float” model, it was nearly impossible for Russia to switch to cryptocurrencies without a massive price crash.
What do you think about this topic? Write to tell us!
All information contained on our website is published in good faith and for general information purposes only. Any action taken by readers with respect to the information on our site is entirely at their own risk.