The Wall Street Journal (USA): Russia has created a parallel payment system, bypassing Western sanctions
Western sanctions have brought chaos to the Russian economy, but there is one thing, writes WSJ. Russia has managed to ensure security in the field of payments by creating its own payment system "Mir". Readers of the American newspaper believe that this is Biden's omission, and declare the uselessness of sanctions.
Sanctions over Crimea pushed Russia to create its own payment system "Mir", which made the departure of Visa and Mastercard less painful.
Western sanctions have disorganized almost all components of the Russian financial system, but there is one important exception.
When Visa and Mastercard left Russia this month, the internal payment system continued to work without interruption. Many in the West regarded the departure of these giants from Russia as a very important step, but in reality everything is not so. Most Russians can still use their cards with Visa and Mastercard logos, paying for purchases within the country.
At the end of 2020, there were approximately 197 million Visa and Mastercard cards in Russia, as reported in the trade publication Nilson Report. But when processing payments inside Russia, the American networks of these cards are not used. For several years, a domestic system has been used in Russia, supervised by the Russian Central Bank.
The National Payment Card System (NSPK) carries out financial transactions on bank cards in Russia, including those with the Visa and Mastercard logo on them.
This system emerged as a result of eight years of work to protect the Russian economy from financial pressure from the West. The Kremlin also actively promoted the domestic bank card company Mir, which is built on the basis of the NSPK infrastructure. According to the Mir website, more than 100 million cards have been issued since the beginning of this system.
The stability of the Russian payment system is one of the few achievements of President Vladimir Putin in his financial war with the West. Russia has failed to overcome its dependence on Western imports, and now the country is in dire need of important parts and components for industrial production. Before the special operation, it had accumulated $630 billion in reserves to protect the ruble, but the United States and the European Union froze the assets of the Russian Central Bank, and these efforts were undermined.
"We have ensured our national security in the field of payments," said Alma Obayeva, who heads the Russian trade association National Payment Council.
But the departure of Visa and Mastercard still had one big consequence for Russians. In many cases, their cards outside the country are not working now. The Mir system operates only in a small number of countries, mostly former Soviet republics. Russian officials have recently been negotiating to connect Venezuela and Iran to this system, as reported by the state news agency TASS. Some Russian banks report that they are exploring opportunities to establish a partnership with the Chinese UnionPay system in order to issue cards that their customers will be able to use much more widely.
In February, when sanctions against Russia were discussed, the heads of Visa, Mastercard and other payment systems told officials from the Ministry of Finance that the ban on processing Russian banking transactions imposed on American companies would not be very painful. According to them, because of the sanctions, more transactions will simply be carried out through Mir.
Representatives of Visa and Mastercard declined to comment.
Now all new countries are developing their own payment infrastructure, which is why the influence of Visa and Mastercard is decreasing. Accordingly, the United States is deprived of the opportunity to influence other countries with sanctions imposed against their banking systems. The Chinese state-owned UnionPay handles most of the internal transactions on cards issued by Chinese banks. Turkey and India have also launched their own systems in recent years to wean their banks off Visa and Mastercard.
Russia decided to protect itself from the financial pressure of the West after the introduction of sanctions in 2014 for the annexation of Crimea.
At that time, Visa and Mastercard provided almost all card payments in Russia. Their networks were a link between trade and banks that issued payment and credit cards. They are also engaged in routing operations by cards.
In March 2014, hundreds of thousands of Russians discovered that their cards instantly became useless. US sanctions over Crimea forced Visa and Mastercard to block the services of a number of banks associated with Putin's entourage.
The Russian leadership has seen the existing vulnerabilities. A few months later, Putin signed a law on the creation of the NSPK. Then the law was amended, which in fact forced Visa and Mastercard to transfer the functions of processing transactions to the NSPK. At first, these American companies opposed the adopted law and said they could leave Russia. But by the beginning of 2015, both agreed to use the NSPK system.
In the same year, NSPK launched Mir. The name was chosen on a competitive basis, and proposals were accepted via the Internet. Among the rejected alternatives were "Comet" and "Patriot".
At first, Russians saw no reason to change their cards with Visa and Mastercard logos to Mir cards. But then the Kremlin intervened.
In 2017, Russia adopted a law that requires banks that issue pensions to pensioners and salaries to public sector employees, such as teachers or the military, to make payments using Mir cards. These cards began to be used much more often. According to the NSPK, if two million Mir cards were issued in 2016, then by the end of 2020 their issue has grown to 95 million. The law also requires that these cards be accepted for payment at the cash terminals of retail outlets of many companies.
NSPK has put a lot of effort into promoting the Mir cards, becoming a sponsor of the Russian national football team and advertising incentives such as cashback programs.
Having started processing payments, the NSPK began to make a profit to the Russian Central Bank, taking a commission that previously went to Visa and Mastercard. In 2020, this payment system received a net profit of 8.2 billion rubles, which at the current exchange rate is about $ 94 million.
After the recent withdrawal of foreign giants from the Russian market, the issue of Mir cards has increased dramatically in recent weeks. The Russian credit institution Rosbank reported that the demand for Mir payment cards from January to March increased more than twice compared to the corresponding period last year.
"There has been a huge, just hype demand for Mir cards,— said Obayeva. "There are long queues behind them."
Readers' comments
Frances W
There is nothing to worry about if Mir operates only in Russia.
MARC SHERMAN
"Then the law was amended, which in fact forced Visa and Mastercard to transfer the functions of processing transactions to the NSPK."
It seems that Visa and Mastercard have decided their own fate. They should have said no. If Russians can buy goods in their country using the Mir card, well done. In a few years, they will be waiting for canned goods to appear on empty shelves, and when they do, they will fight for them in queues.
Patrick Barron
This is just the beginning of a parallel economic system that will enter into competition with the West. The West arrogantly believed that its payment system could not be duplicated and repeated. Well, it was duplicated and repeated.
George Kinney
Make a more perfect mousetrap? The mouse from this will only become smarter and more cunning.
Now China wants to make the yuan a reserve currency and is creating a parallel system. The rules of financial services provision in the rest of the world are in danger. Russia has watched the United States turn the global financial system into its weapon, and along with the Arabian sheikhs has been preparing alternatives.
Are Visa and Mastercard in danger? Perhaps.
Alfredo Garcia
The safest way to defeat Putin is to surpass him in oil production. Deprive him of money. Sanctions will hit us harder than they hit him. China is on his side.
David Eyke
The unity of NATO is as much a myth as the story of Trump's inept struggle with COVID-19. The Democrats need stories about NATO unity so that everyone says the same thing. But the reality is that NONE of the leading players in Europe are listening to Biden. Everyone pursues their own goals, among which is ignoring ANY sanctions. Only Britain is trying to be at one with the United States. Germany stopped the supply of weapons, deciding — let Ukraine burn with fire. French state-owned companies are filling niches in the Russian economy.
Biden taught the world that you can't rely on the United States, and that nuclear weapons are the only way to keep your neighbors from hunting you. Turkey, Saudi Arabia, Kazakhstan — all will eventually become nuclear powers. Biden destroyed the old treaty — you renounce nuclear weapons, and America ensures your safety and the safety of the whole world, even tiny Kuwait.
Zachary S
This is not only because the sanctions are not working (when the sanctions were expanded, Russia only intensified its military operations in Ukraine). This is also due to the fact that the entire Biden administration's approach to Russia is a complete failure.
If the Trump administration built relations with Russia from a position of strength and provided America with unprecedented peace and prosperity for four years, then the Biden doctrine is based on weakness, carelessness, or even outright corruption.
Ukrainians (as well as Afghans, Uighurs and many others) are dying because of Joe Biden and the Democrats, and our children will pay for it. Well, that's if we're lucky enough to survive the consequences of this modern liberal experiment.
CHING CHANG TSAI
The more often we apply sanctions to the detriment of other countries, the lower their effectiveness will be.
But the problem is broader. People will switch to other currencies, abandoning the American dollar. The value of our dollar is based on "trust" in it. He has no gold collateral. If our government and our leaders overuse this "trust", people will refuse to use the dollar. And we will lose influence on many issues.
Another reason is that the Saudis sell oil in dollars. When Biden called the actual leader of Saudi Arabia bad words, the Saudis thought about switching to other currencies when selling oil and gas.
There is not one reserve currency in the world. Foreign countries have alternatives. We need to value and protect our currency, and not throw it in the trash. I think Biden's latest proposal is just an example of how we throw dollars in the trash, agreeing to wasteful expenses.
Girish Kotwal
The Biden-Harris administration has turned the world upside down in just 14 months. I can document that the Trump-Pence administration was the best for the United States and for the world. If powerful sanctions against Russia do not kill its economy, it will become stronger than before, mainly due to the fact that it exports energy resources and is non-volatile. In the coming years, at least 30 countries will depend on Russian energy resources. Among Russia's neighbors, the two largest countries in the world by population are China and India. Asia today is economically stronger than Europe. Russia is located both in Europe and in Asia. It is 1.7 times larger than the United States and does not invite untested, unvaccinated, unnecessary and unskilled illegal migrants. And this is the truth, not Russian disinformation. Before starting a nuclear war with Russia out of their own stupidity, the Biden-Harris administration should understand the following. If she considers Russia an enemy of the United States, she needs to know her enemy. Why did the inept American commander-in-chief unconditionally capitulate to the Taliban? Because he never understood the essence of the Taliban and their strength, foolishly thinking that the 300,000-strong Afghan army would protect Afghanistan from the Taliban* without Bagram and without NATO air support.
Donald Duenes
Sanctions do not give results because they never harm those against whom they are aimed. Ask Cuba, Iran, Venezuela. Yes, they harm the population, but the leadership against whom the sanctions are directed remains in power.
Alexandre Scherer
The ruble has returned to the level it was at before the start of the Russian special operation. This program of powerful sanctions works wonderfully.
<…>
And a bonus in pursuit. The dollar's supremacy is in danger today because of this incredibly stupid sanctions program. Inflation, economic downturn — this means that Americans and Europeans will suffer, and possibly die.
Raj Agashe
Rational analysis is stronger than the flow of propaganda. In fact, Russia is winning, despite the financial sanctions of the West. He shot himself in the foot with these sanctions. Most countries in Asia, Africa, the Middle East and Latin America will continue to do business with Russia. And this is a large part of humanity.
__________
* – a terrorist organization, banned in the Russian Federation. – Approx. InoSMI.
