Moscow to Expand its Own Payments Systems as Visa and Mastercard Expected to Fall Out of Russian Use

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Further anti-Russian trade sanctions are expected to be introduced by Washington from January 1 and seek to isolate Russian traders from US controlled payment systems. This is expected to include Russian banks linked to the US Visa and Mastercard networks.

The Russian central bank has warned the country’s lenders over potential risks, and has recommended that Russian financial institutions take the necessary preventive steps in case their partner-banks are forced to stop providing connection to services by the world’s two most used payment systems – Visa and Mastercard. The Russia’s banks currently working as intermediaries include Credit Union; one of Russia’s largest private lenders, Rosbank, a Russian subsidiary of Societe Generale, Russia’s second biggest bank VTB and the privately owned Promsvyazbank.

VTB and Promsvyazbank have already been included in the Countering America’s Adversaries Through Sanctions Act (CAATSA), approved by US Congress last summer. The legislation allows Washington to introduce penalties against enterprises and individuals that are seen as hostile towards the US or loyal to regimes that are hostile to the US. The Central Bank of Russia advises that Russian banks should look for alternative systems that will substitute for current providers of Visa and Mastercard services, complete maintenance service contracts and pass Russian integration tests.

In response to the US sanctions, Russia has developed its own national payment system. The Mir payment system was introduced in 2015 after clients of various Russian banks were unable to use Visa and Mastercard. Customers found bank issued credit cards linked to Visa and Mastercard systems no longer worked. Russia has subsequently issued 37 million Mir cards as at June 2018, and is examining further ways to deleverage its economy and trade from the US dollar and US payment mechanisms. The Moscow-backed Eurasian Economic Union, which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia and has a GDP of US$5 trillion, has already deleveraged 70 percent of its internal trade from the US dollar Russia and China are also looking at developing non-US dollar payment networks and plan to extend these internationally. Meanwhile, India and the UAE have also just announced they will cease US dollar trade and conduct business in their own currencies.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “The United States is effectively promoting the de-linking of the US dollar from use as a global currency by introducing sanctions that impact negatively upon its dependability. This is a growing trend and is starting to affect the future identity and monitoring of global payment systems and the transparency that until now has gone with them. It is another example of a more anti-globalized trade mood coming into play from the United States, and international businesses need to keep an eye on how this continues to develop.”

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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