With western sanctions continuing to cripple Russia’s economy, the country has had to look to alternative payment systems since being cut off from SWIFT – turning to China’s UnionPay.
Since the onset of the Russia-Ukraine conflict, Russia has seen its access to $630 billion in foreign exchange reserves restricted and observed over $17 billion in assets seized from the country’s oligarchs.
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Russian banks, including the country’s largest bank, Sberbank, are now turning to China’s UnionPay and home-grown payment system Mir, as a last attempt to settle international transactions in the wake of ongoing alienation by the West, as services such as PayPal, Visa, American Express, and Mastercard have all suspended operations in the country.
With over 2,500 partnerships with both European and U.S. credit card payment institutions and its wide reach of over 70 regions, Union Pay allows foreign cards to be processed through its payment system.
However, this could be a move subject to secondary sanctions by the West, if UnionPay knowingly helps Russian banks circumvent the ongoing sanctions, as Union Pay is approaching the issue with caution.
Is Mir a viable alternative to SWIFT?
Mir, similar to SWIFT, is Russia’s payment system for electronic fund transfers, which was established by the Central Bank of Russia in May 2017, which provides financial institutions with Mir-branded payment products that they then use to offer credit, debit, or other programs to their customers.
While pundits might cite the local Mir payment system as a worthy alternative, it has several limitations that stifle its usage. Specifically, Mir neither issues cards nor extends credit – and is only accepted in less than a dozen countries that are not major economic powerhouses, such as Kyrgyzstan and Armenia.
UnionPay closely follows Visa in transaction volumes, which has a 40% market share. At 32%, Union Pay ranks above Mastercard, which sits at 24 percent.
Is crypto still a solution for Russia?
Russia’s turn to UnionPay is certainly a last-grasp effort by the country’s banks, given the severe restriction on the ability to harness the power of cryptocurrency.
Since more crypto exchanges have stated their positions in cooperating with law enforcement agencies, while others simply block accounts of suspected accounts knowingly dealing with Russia and its oligarchs – the value of crypto becomes less reliable to the country in the ongoing geopolitical crisis.
ECB President, Christine Lagarde stated that digital assets “are being used as we speak, as a way to try to circumvent the sanctions that have been decided by many countries around the world against Russia.”
However, FinCEN’s deputy director, Michael Mosier, rebutted Lagarde’s claim with respect to 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 it is near impossible for Russia to pivot to cryptocurrencies without large-scale price crashes, using the “free float” model.
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