Tough sanctions from democratic countries combined with voluntary withdrawals by big companies leave Russia economically isolated. For example, Visa, Mastercard and American Express have suspended business in the country. Such boycotts may draw Russia and China closer together in payment systems and much else besides. But fears this will spawn a powerful new economic bloc look overblown.
In theory, Beijing could provide the financial infrastructure needed to help Moscow bypass western sanctions. In practice, this would be tricky. The credit card payment sector is a case in point.
Cards issued by the three companies in Russia will no longer work outside the country. Those issued elsewhere in the world will not be usable in Russia. Russian cardholders of Visa, Mastercard and Amex can still make domestic purchases via the country’s homegrown card payment system, Mir.
For international transactions, Russian banks say they may issue cards powered by China’s state-controlled card payment monopoly UnionPay. But switching would require the installation of new IT infrastructure. This will be tricky when powerful tech nations such as the US and Korea are imposing sanctions on Russia.
China’s Cross-Border Interbank Payment System (Cips) has been touted as a substitute for Swift, from which several big Russian banks have been ejected. But the two serve very different purposes. Swift is primarily a messaging system used by more than 11,000 institutions across 200 countries. Cips was created by China’s central bank to promote the global use of the renminbi by settling payments in it. More than 80 per cent of its transactions rely on Swift messaging.
Cips is small compared to Swift. It had 1,159 participants a year ago. Russia’s own version of Swift, System for Transfer of Financial Messages, is even smaller with just 400 users.
China may prove to be a partner capable of keeping Russian coffers filled. But it would have to be in renminbi. Long term that does not look like a viable option as long as the greenback dominates global trade.
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