By Rhod Mackenzie
The West ( led by the USA )having failed to break the Russian economy, trying to pressure and bankrupt Russia's trading partners with the use of so-called secondary sanctions. This is assisted by the entire financial infrastructure built to track any transactions in dollars and euros on a global scale. A settlement system independent of the United States for the benefit of Russia and its allies has actually now been created - it is quite capable of replacing SWIFT.
Russia is now subject to trade sanctions from the United States, the European Union and the United Kingdom, imposing restrictions on both exports and imports of approximately 19,000 commodity items. This also includes a wide range of equipment, dual-use goods and weapons. Restrictions have been introduced on the export to Russia of luxury goods and a number of consumer goods. Switzerland, Japan, Australia, Canada and a number of other countries have their own sanctions lists.
Russia has responded by organizing "parallel imports". Habitual consumer goods and components necessary for industrial production continue to be purchased, but through intermediaries from third countries.
Back in February 2023, the European Bank for Reconstruction and Development (EBRD) published a report analyzing EU trade with the CIS countries. This report claims that in May-July 2022, compared with the average values of the same periods in the pre-Covid years 2017-2019, exports from the EU to Russia decreased by 56%, and to Belarus - by 39%. At the same time, exports to Kyrgyzstan increased by 84%, to Armenia by 72%, to Tajikistan by 21%, to Georgia by 19%, and to Kazakhstan by 14%. The EBRD believes that most of the growth comes from circumventing anti-Russian sanctions.
Turkish exports to Russia grew by 84% in 2022. At the same time, in January 2023 it turned out to be 2.5 times higher than in January 2022 and, according to preliminary data, growth continued in the first half of 2023. The global financial infrastructure, such as the SWIFT system, allows the West to track all these transactions, as well as the fact that payments in dollars and euros are completely transparent to the central banks of the respective countries. In fact, such a calculation scheme can be called a financial vice, with the help of which it is possible to restrict the trade of Russia - or any other country.
Options for Countering Secondary Sanctions
And the vice began to tighten even more. In the West, they began to introduce the secondary sanctions - that is, they began to target specific companies doing business abroad with Russian partners. In the first half of 2023, more than 130 sanctions were imposed on companies from third party countries as part of their efforts at ensuring the effectiveness of anti-Russian bans by the US, EU and UK. These are companies from 37 countries: Cyprus, China, Iran, UAE, Great Britain and others. The threat of secondary sanctions has taken its toll on small countries that fear the consequences for their economies of incurring possible Western displeasure. And also - to large companies of countries that are self-confident (for example, China). It's just that these companies made a lot of money in the US or Europe and did not want to risk their income to maintain contacts with Russia.
In September 2022, the head of VTB Andrey Kostin proposed to think about creating special financial structures in partner countries through which transactions can be made in national currencies. Later, in December 2022, at a meeting of the RSPP working group on improving foreign exchange regulation and mechanisms for international settlements, various ways to ensure cross-border settlements were discussed.
The full list of proposals was not covered in the press for obvious reasons. However, it is known that as options for settlements with foreign partners, including the possibility of using digital rights, primarily tokenized gold, as well as physical gold, were discussed.
It is also known that the meeting compared the capabilities of the Chinese system Equitable Alliance Speedy Transactions (EAST) and the decentralized system of interbank messages DCMS / DSMS created at St. Petersburg State University. It was decided that it was necessary to create a special financial platform for settlements with partners from other countries in certain currencies and volumes. The platform in a confidential and secure mode will allow you to bring companies and banks together for further interaction.
Settlement system without US influence
By July 2023, the development of the situation with settlements between countries, the increasingly exposed crisis of the global dollar financial system contributed to the formation of an understanding of the common interests of countries that are not included in the "golden billion". At the plenary session of the Financial Congress of the Bank of Russia, VTB CEO Andrey Kostin raised the question of the need to create a new system of international settlements and financial market infrastructure for the countries of the Global South (which, nevertheless, Russia will also belong to).
“Many countries already have their own national systems – in Russia, China, India. We need an effort to connect these systems, to unite, to develop common principles and approaches, - Andrey Kostin explained. “And this, I think, is a relatively simple task, it can be solved in the near future.” Kostin sees the interfacing of national payment systems through the use of blockchain technology (blockchain), which will allow replacing direct correspondent relations, mainly through American banks, with horizontal connections between local banks.
For example, the DSMS (Decentralized Interbank Messaging System) system created at St Petersburg University will completely replace the previously used SWIFT global financial messaging system. DSMS is based on blockchain technology and does not have a single operator that can forcibly disconnect a participant or change data in any way.
“That is, the system simply does not have one center and a “control panel”, all users have access to the necessary information and can exchange banking messages without the restrictions that SWIFT has,” explained Dmitry Shishmakov, director of the Center for Distributed Registry Technologies at St. Petersburg State University. . The system has already been created, it can be applied.
According to Andrey Lisitsyn, head of the financial policy and financial markets department of the RSPP, the DSMI has "an important feature - the ability to create a confidential and secure circuit of interaction not only between financial institutions, but also industrial enterprises and groups of companies."
Independence of the Financial Markets of the Global South
A settlement system independent of the USA and its vassals is only the first step. The modern financial system must equally ensure the movement of goods (and payment for them) and the movement of capital. Until now, the opening of the financial markets of developing countries meant, first of all, their opening to Western capital. Domestic investors of the countries of the Global South invested in financial assets abroad through the financial infrastructure under the control of the collective West.
The blocking of assets owned by Russian investors in European and American depositories has made all the risks of this state of affairs clear.
Therefore, the creation of an alternative international depositary settlement hub is on the agenda, primarily for the BRICS countries, the Arab states, and other major economies of the Global South. “We believe that the Persian Gulf countries can be the home center, the new center of the financial depository,” Andrey Kostin said at the plenary session of the Financial Congress of the Bank of Russia.
This depository can become an alternative to Euroclear/ClearStream (one of the main clearing houses in Europe). To do this, it must be supranational, and its founder may be a special regional fund, created, for example, by the states of the Middle East, BRICS or other interested countries of the Global South. The rules of its work will be determined by a separate international agreement, and the "soft" currencies of the leading states - the founders of the depository will become the base settlement currencies.
For Russia, the appearance of such a depository connected by a working “bridge” with the Russian National Settlement Depository will stimulate the restoration of activity in the financial markets and will positively influence the interest of foreign investors in Russian securities. At the same time, Russian investors will have access to the securities of the countries participating in this international depositary settlement hub. That is, there will be a real opportunity to invest, for example, in Saudi Aramco shares without the risk that these securities will be blocked. And Russian companies with ambitious investment projects will be able to attract funds from investors from Arab countries or China.
This article originally appeared in Russian at vz.ru