It appears that sanctions are not biting Russia as hard as the West had hoped. One of the country’s banks has created a new system that bypasses the internationally-used SWIFT system to send money transfers to other countries.
The sanctions that were originally designed to cut Russia from euro and US dollar financial markets is backfiring, and are instead creating an alternative payment system that is no longer reliant on the world’s reserve currency. Russian bank VTB on Tuesday became the first to send a money transfer to China in the yuan, after getting cut off from SWIFT back in March. The new payment system will limit the amount of a single transfer to 20 million roubles (equivalent to $328,677), while the monthly limit will be set to 100 million roubles.
VTB plans to begin lending in non-Western currencies including the yuan later this year. Russian-based Sberbank said it already started lending in the yuan, in order to circumvent sanctions and update financial systems in regions that haven’t imposed sanctions against the country. “The new reality is leading to a massive rejection of the use of the dollar and the euro in international payments,” said VTB’s CEO Andrei Kostin as cited by Reuters.
“The launch of the yuan transfer system will significantly simplify the work of Russian companies and individuals with Chinese partners, increasing the popularity of the yuan in our country,” he added. Demand for the yuan has substantially increased ever since the US and the EU imposed sanctions against Russia over its military operation in Ukraine, effectively limiting the need for otherwise widely used currencies such as the dollar and the euro.
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