This week the Bank of Russia held its annual Congress, with the opening session exploring obstacles to growth. One obvious one is sanctions and Russia’s international payment challenges. Currently Russia chairs the BRICS trading block, which has been discussing the creation of BRICS Bridge, a digital currency cross border payment solution. Bank of Russia Governor Elvira Nabiullina noted that cooperation requires more than Russian willingness and sanctions have resulted in its partners being “under extreme increasing pressure,” according to Russian news agency TASS.
Reuters reported her describing discussions about BRICS Bridge as challenging and creating a system would take time.
“I think that some global platforms will gradually emerge, because countries look at our experience and understand the vulnerability of the financial infrastructure and the vulnerability in case they are included in only one existing system,” she said, referring to the Swift cross border payment messaging system, which blocked Russia’s participation following Ukraine-linked sanctions.
Expanded sanctions
Last month the Moscow Exchange (MOEX) was added to the sanction list. Apart from trading stocks and bonds, it is also home to the foreign exchange (FX) market. Hence, the new sanctions brought trading in dollars and euros to a halt. Instead of referring to MOEX rates, the central bank now provides rates calculated based on over the counter FX trading.
However, China’s renminbi was already being used more heavily in Russia. It receives payments for oil shipments to China in the currency, which is now a major part of Russia’s central bank reserves. On the Chinese end, both the Chinese and international press reported that the Chinese banks involved with Russian payments are small ones, protecting the major banks from sanctions.
“New financial technology creates opportunities for schemes which did not exist before. This is why we softened our stance on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments,” said Governor Nabiullina, according to Reuters.
Russia has a formal system for tokenization it calls digital financial assets (DFA), which initially were banned for payments. It subsequently amended laws supporting DFAs such as tokenized precious metals for cross border payments.
Sanction busting below the radar
During the same conference panel, Andrei Kostin, the CEO of Russia’s second largest bank VTB, said that mechanisms used for cross border payments should become state secrets. “I can see very well that right now somewhere at the U.S. embassy, a second secretary is sitting and writing down every public statement of ours,” he said. “Maybe he is even sitting here. Whatever steps we take, we can see that the reaction [from Western countries] is very quick”.
We reported on 13 March that Russia had signed a law allowing digital financial assets for cross border payments. On 25 March, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned most of the DFA platforms not previously on the list.
