Last week, we highlighted an article that reported on a new secure payments channel between Russia and Iran. This channel does not use dollars and allows Russia to sell weapons to Iran and for Iran to hide reserves in Russia, free of U.S. sanctions and U.S. interdiction. Now Russia has unveiled an even more ambitious payments system, as reported in this article.
This new system will provide services similar to SWIFT (the Society for Worldwide Interbank Financial Telecommunication), which is the leading bank message traffic facility in the world today for funds transfers. In recent years, SWIFT has become politicized. Iran was banned from using SWIFT from 2012–16.
Certain Iranian banks were banned from SWIFT again in 2018. Russia has never been banned from SWIFT, but the mere possibility gives Russia a large incentive to create an alternative payments system not subject to U.S. control.
With this announcement, Russia is getting closer to that goal. The new Russian system may quickly be expanded to include China, India, Iran and Turkey and eventually other nations.
What all of these countries have in common is that they have been subject directly or indirectly to U.S. financial sanctions and risk account freezes and confiscations. It is difficult to escape these sanctions while using large established networks like SWIFT.
Building an alternative from the ground up using local currencies such as the ruble or yuan or new cryptocurrencies is the best way to work around U.S. sanctions. Russia is the leader in developing these new technologies and systems.
It may not be long before the participants in the Russian system trade oil, weapons, infrastructure, agricultural produce and electronics among themselves without using dollars at all. In time, the dollar may be just another local currency like Mexican pesos or Turkish lira. That time may not be faraway.
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