Has the US Ultimately Managed to Sever Russia's Major Trade Route?
Washington has effectively disrupted the flow of payments between Moscow and Beijing; however, the looming threat of sanctions is fostering innovation. Read Full Article at RT.com.
TroibNews 
The influence of secondary sanctions from Washington is clearly affecting Chinese banks, signaling a possible victory for the U.S. in one aspect of a broader economic struggle that it may ultimately be losing.
Despite severe sanctions from Western countries, the robustness of the Russian economy was celebrated by those favoring a multipolar world order, marking a significant setback for the West. However, ongoing payment issues between Russia and China underscore that this resilience comes with challenges.
In June, the U.S. Treasury Department targeted local banks in nations trading with Russia for secondary sanctions. Originally established in December, these sanctions were broadened in June, sending a stern message about Washington's serious enforcement intentions, particularly affecting Chinese banks, which are Russia's main trading partner.
The beginning of the year saw major Chinese state-owned banks starting to avoid dealings with Russia. Nevertheless, smaller regional banks less connected to the Western financial system initially seemed capable of replacing them. Eventually, these banks also began to pull back.
By summer, reports indicated significant disruptions in the processing of Russian payments in Chinese yuan. Kommersant reported in late July that Chinese banks were rejecting and returning around 80% of these payments. A mid-August report from Izvestia suggested an even higher rejection rate of 98%. This disruption delayed payments and hindered transactions for many Russian importers, as detailed in a recent Reuters report where a government source explained, “At that moment, all cross-border payments to China stopped. We found solutions, but it took about three weeks, which is a very long time, trade volumes fell drastically during that time.”
Russian businesses have resorted to using intermediary chains in third countries, which has increased both costs and processing times. While large firms still manage some bilateral agreements, smaller consumer goods companies face most difficulties.
The scarcity of yuan, driven by these tighter restrictions, has made procuring the currency harder and costlier for Russian firms reliant on it for trade. The overnight yuan borrowing rate on the Moscow Exchange experienced a sharp increase, shooting up to 212% in early September from 8.5% at the end of August. This spike indicates a severe liquidity shortage and has affected the ruble's value against the yuan.
As liquidity dries up, firms increasingly depend on costlier swap operations with the Russian central bank, which in September saw a record issuance of yuan. The central bank may need to extend more support to maintain liquidity, as suggested by VTB CEO Andrei Kostin, who stated, “I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps.”
The payment issues have impacted imports, which have seen a slight decline. Although delayed, the data does not fully capture the recent surge in transaction costs. Over the first seven months of the year, Russian imports from China fell by more than 1% to $62 billion.
Despite difficulties, Russia-China trade has not collapsed but rather grew by 1.6% in the first half of the year. High-end Russian officials and economists maintain a forward-looking stance on overcoming these challenges through financial innovations. Russian presidential aide Maksim Oreshkin optimistically noted at the Eastern Economic Forum, “There is a problem with payments, but, as we have seen over the past years, any type of problem leads to new financial innovations, to the appearance of new payment methods.”
Efforts to find alternative solutions include potentially utilizing Russia’s Mir payment system and embracing cryptocurrencies for international transactions, as stated by Bank of Russia Governor Elvira Nabiullina. Discussions also involve the future role of central bank digital currencies (CBDCs), which could transform the financial landscape by enabling transactions through central banks instead of commercial ones, thus circumventing sanctions.
While the challenges posed by U.S. sanctions signify a tactical victory in disrupting Russia’s trade mechanisms and maintaining the dominance of the dollar over the yuan, they also reflect a strategic misstep. Rather than demonstrating control, these restrictions underscore the diminishing influence of the U.S. and point toward an inevitable shift in global financial systems where the reliance on traditional financial frameworks diminishes, leading to more sovereign and interconnected financial operations globally.As countries explore alternative methods of facilitating trade, the landscape of international finance is on the verge of significant transformation. The growing consideration of CBDCs by both Russia and China highlights an emerging paradigm where central banks could act as intermediaries in cross-border transactions, effectively bypassing the traditional reliance on commercial banks heavily influenced by Western financial regulations.
This pivot not only aims to secure economic independence but also fosters a more diversified and resilient monetary structure capable of withstanding geopolitical pressure. The collaboration between Russia and China in this context invites further exploration into joint digital currency initiatives and greater financial integration, which could ultimately lessen their exposure to U.S.-imposed sanctions.
While Washington may currently view its actions as effective, they do risk pushing other nations — particularly China — to reevaluate and fortify their financial systems in response to perceived hostility. The sentiment echoed by observers suggests a realization that the West’s punitive measures, rather than isolating Russia, could inadvertently drive it closer to alternative partners and fortify non-Western economic alliances.
Moreover, the assertion by many analysts that this situation could yield a lasting shift away from dollar dependency should not be understated. Countries are increasingly scrutinizing the vulnerabilities of being tethered to a currency that can be weaponized. The notion of "de-dollarization" is gaining traction not just as rhetoric but as a practical strategy among various nations seeking to safeguard their economic interests against potential sanctions.
Furthermore, as financial networks evolve, the integration of new technologies such as blockchain and enhanced payment systems could open avenues for more efficient and secure international transactions. Nikkei Asia highlighted that the “de-dollarization” movement is not a mere fantastical notion but a tangible shift gaining momentum across multiple sectors globally.
However, this transformation does not come without its challenges. The complexity of aligning different regulatory frameworks and building trust among various nations around new financial systems requires careful navigation. Yet, the growing dissatisfaction with a dollar-dominated system is compelling many to move towards practical alternatives, thus setting the stage for an era of more diversified currency usage in international trade.
In summary, while the United States may perceive its tightening grip on Russia's economic activities as a victory for sanctions, the broader implications speak to a dynamic shift in the world’s financial architecture. The West's aggressive approach has not only galvanized Russia and China to seek innovative solutions but also encouraged a collective rethinking of the financial systems that govern global trade.
The reality is that every imposition of sanctions or restriction could prompt corresponding actions that diverge from traditional systems, paving the way for a future where economic relationships are redefined. As nations begin charting their paths toward financial independence, the complex interplay between traditional power structures and emerging economic realities will shape the global landscape for years to come.
In conclusion, Washington's current strategy of economic sanctions, while achieving some short-term objectives, ultimately risks catalyzing the very changes it seeks to prevent. The resilient and adaptive nature of economic relationships in the face of adversity suggests that the long-term consequences of these actions may lead to a reshaped financial order, where alternative currencies and new technological solutions thrive in response to geopolitical challenges. The U.S. may need to reevaluate its approach as it navigates an increasingly multipolar world, where the economic balances are shifting away from its favor.
Olivia Brown for TROIB News
Despite severe sanctions from Western countries, the robustness of the Russian economy was celebrated by those favoring a multipolar world order, marking a significant setback for the West. However, ongoing payment issues between Russia and China underscore that this resilience comes with challenges.
In June, the U.S. Treasury Department targeted local banks in nations trading with Russia for secondary sanctions. Originally established in December, these sanctions were broadened in June, sending a stern message about Washington's serious enforcement intentions, particularly affecting Chinese banks, which are Russia's main trading partner.
The beginning of the year saw major Chinese state-owned banks starting to avoid dealings with Russia. Nevertheless, smaller regional banks less connected to the Western financial system initially seemed capable of replacing them. Eventually, these banks also began to pull back.
By summer, reports indicated significant disruptions in the processing of Russian payments in Chinese yuan. Kommersant reported in late July that Chinese banks were rejecting and returning around 80% of these payments. A mid-August report from Izvestia suggested an even higher rejection rate of 98%. This disruption delayed payments and hindered transactions for many Russian importers, as detailed in a recent Reuters report where a government source explained, “At that moment, all cross-border payments to China stopped. We found solutions, but it took about three weeks, which is a very long time, trade volumes fell drastically during that time.”
Russian businesses have resorted to using intermediary chains in third countries, which has increased both costs and processing times. While large firms still manage some bilateral agreements, smaller consumer goods companies face most difficulties.
The scarcity of yuan, driven by these tighter restrictions, has made procuring the currency harder and costlier for Russian firms reliant on it for trade. The overnight yuan borrowing rate on the Moscow Exchange experienced a sharp increase, shooting up to 212% in early September from 8.5% at the end of August. This spike indicates a severe liquidity shortage and has affected the ruble's value against the yuan.
As liquidity dries up, firms increasingly depend on costlier swap operations with the Russian central bank, which in September saw a record issuance of yuan. The central bank may need to extend more support to maintain liquidity, as suggested by VTB CEO Andrei Kostin, who stated, “I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps.”
The payment issues have impacted imports, which have seen a slight decline. Although delayed, the data does not fully capture the recent surge in transaction costs. Over the first seven months of the year, Russian imports from China fell by more than 1% to $62 billion.
Despite difficulties, Russia-China trade has not collapsed but rather grew by 1.6% in the first half of the year. High-end Russian officials and economists maintain a forward-looking stance on overcoming these challenges through financial innovations. Russian presidential aide Maksim Oreshkin optimistically noted at the Eastern Economic Forum, “There is a problem with payments, but, as we have seen over the past years, any type of problem leads to new financial innovations, to the appearance of new payment methods.”
Efforts to find alternative solutions include potentially utilizing Russia’s Mir payment system and embracing cryptocurrencies for international transactions, as stated by Bank of Russia Governor Elvira Nabiullina. Discussions also involve the future role of central bank digital currencies (CBDCs), which could transform the financial landscape by enabling transactions through central banks instead of commercial ones, thus circumventing sanctions.
While the challenges posed by U.S. sanctions signify a tactical victory in disrupting Russia’s trade mechanisms and maintaining the dominance of the dollar over the yuan, they also reflect a strategic misstep. Rather than demonstrating control, these restrictions underscore the diminishing influence of the U.S. and point toward an inevitable shift in global financial systems where the reliance on traditional financial frameworks diminishes, leading to more sovereign and interconnected financial operations globally.As countries explore alternative methods of facilitating trade, the landscape of international finance is on the verge of significant transformation. The growing consideration of CBDCs by both Russia and China highlights an emerging paradigm where central banks could act as intermediaries in cross-border transactions, effectively bypassing the traditional reliance on commercial banks heavily influenced by Western financial regulations.
This pivot not only aims to secure economic independence but also fosters a more diversified and resilient monetary structure capable of withstanding geopolitical pressure. The collaboration between Russia and China in this context invites further exploration into joint digital currency initiatives and greater financial integration, which could ultimately lessen their exposure to U.S.-imposed sanctions.
While Washington may currently view its actions as effective, they do risk pushing other nations — particularly China — to reevaluate and fortify their financial systems in response to perceived hostility. The sentiment echoed by observers suggests a realization that the West’s punitive measures, rather than isolating Russia, could inadvertently drive it closer to alternative partners and fortify non-Western economic alliances.
Moreover, the assertion by many analysts that this situation could yield a lasting shift away from dollar dependency should not be understated. Countries are increasingly scrutinizing the vulnerabilities of being tethered to a currency that can be weaponized. The notion of "de-dollarization" is gaining traction not just as rhetoric but as a practical strategy among various nations seeking to safeguard their economic interests against potential sanctions.
Furthermore, as financial networks evolve, the integration of new technologies such as blockchain and enhanced payment systems could open avenues for more efficient and secure international transactions. Nikkei Asia highlighted that the “de-dollarization” movement is not a mere fantastical notion but a tangible shift gaining momentum across multiple sectors globally.
However, this transformation does not come without its challenges. The complexity of aligning different regulatory frameworks and building trust among various nations around new financial systems requires careful navigation. Yet, the growing dissatisfaction with a dollar-dominated system is compelling many to move towards practical alternatives, thus setting the stage for an era of more diversified currency usage in international trade.
In summary, while the United States may perceive its tightening grip on Russia's economic activities as a victory for sanctions, the broader implications speak to a dynamic shift in the world’s financial architecture. The West's aggressive approach has not only galvanized Russia and China to seek innovative solutions but also encouraged a collective rethinking of the financial systems that govern global trade.
The reality is that every imposition of sanctions or restriction could prompt corresponding actions that diverge from traditional systems, paving the way for a future where economic relationships are redefined. As nations begin charting their paths toward financial independence, the complex interplay between traditional power structures and emerging economic realities will shape the global landscape for years to come.
In conclusion, Washington's current strategy of economic sanctions, while achieving some short-term objectives, ultimately risks catalyzing the very changes it seeks to prevent. The resilient and adaptive nature of economic relationships in the face of adversity suggests that the long-term consequences of these actions may lead to a reshaped financial order, where alternative currencies and new technological solutions thrive in response to geopolitical challenges. The U.S. may need to reevaluate its approach as it navigates an increasingly multipolar world, where the economic balances are shifting away from its favor.
Olivia Brown for TROIB News
