This week is Naked Capitalism’s fundraising week. We’re pleased to invite 632 donors to join us as they have already invested in our efforts to fight corruption and predation, especially in the financial sector. Donation pageHere’s how to donate by check, credit card, debit card, PayPal, Clover, or Wise. Why are we doing this fundraiser?, What we accomplished last yearAnd our current goal is to Bonuses for guest bloggers.
Hello, this is Eve. BRICS advocates may see plans to promote barter trade between China as a sign that the two countries have been successful in evading US sanctions. In fact, it’s the opposite. Barter trade is a practice generally permitted by countries that have not been successful enough in evading sanctions by other means. It is highly inefficient and favors fraud. In the article below, you will see that Russia is trying to put in place a number of procedures, likely to prevent more than a minimal amount of fraud.
Presumably, these deals are intended primarily as a backup mechanism and are not expected to amount to a significant volume even if all issues are resolved, but if this is not the case, then US and EU sanctions are functioning to impose additional costs and hassles on Russian trading partners.
Recall that the US has grown frustrated with Russia’s ability to continue exporting despite intended US and European sanctions. The US has tried to close down some of the mechanisms used by Russian buyers, one of which was to impose secondary sanctions on third-party actors, such as Chinese banks, that handled Russia-related payments. This did not cause all Chinese banks to stop trading with Russia, but it did cause the larger banks to pull out. It is unlikely that smaller banks will be able to fully compensate for this loss of capacity. From Business Insider on September 1st:
While Chinese state-run banks have stopped doing business with Russia for fear of being caught up in U.S. sanctions, smaller financial institutions are filling in their shoes. Reuters It was reported on Friday.
Some smaller local Chinese banks still process payments with Russia because they have no international business to worry about.
But they lack the IT systems and staff needed to process cross-border transactions, and even have to send paper copies of documents to and from Russia for stamps and signatures, an anonymous banking official told the news agency.
Another banking official told Reuters that despite the difficulties, Russia, a major commodity exporter, was still receiving payments for its exports of raw materials such as oil and grain, as was China, which was still receiving payments for its key technology exports.
But smaller Russian companies, such as those in the consumer goods industry, aren’t so lucky. An anonymous source close to the Chinese government told Reuters that China’s major state-owned banks have stopped trading with Russia “en masse,” leaving billions of yuan in transactions in limbo, dealing a major blow to small businesses.
of The Kremlin acknowledges He said he was in discussions with China to seek a solution to the trade settlement issue.
Following a Reuters report Recent news from Russian media Regarding the obstacles local businesses are having with Chinese banks…
However, banks with business connections to Russia have scaled back their transactions with the country since the United States approved them in December last year. Secondary sanctions The attacks targeted financial institutions that supported Russia.
Moscow is now in a hurry Alternative Payment Systemsinclude CipherTo facilitate trade.
The Business Insider article also notes that Russia and China have even had to consider resorting to barter.
A 2001 Washington Post article about notorious commodities trader and tax evader Marc Rich tells the story of how he made a huge fortune arranging large-scale barter deals with sanctioned countries such as South Africa, Iran and Libya. To be sure, this was not Rich’s only lucrative job. A few excerpts to give a sense of the story:
The list of countries Rich did business with reads like a catalogue of rogue states: Iran during the hostage crisis, South Africa during apartheid, Yugoslavia under Slobodan Milosevic, North Korea, Libya under Muammar Gaddafi, the Soviet Union under Leonid Brezhnev.
But it was during his time in the Soviet Union that he made his greatest mark: he was active there, according to traders who knew him, and built close ties with officials at the state commodity trading monopoly, Raznomymport, selling the strategic metal zinc to the USSR. After the USSR collapsed in 1991, these connections helped Rich become, for a time, Russia’s most important Western trader.
“Marc Rich was way ahead of the big international companies,” said Vladimir Kvind, a leading scholar of Soviet and Russian business practices at Fordham University in New York. “He was one of the founders of barter trade with the former Soviet Union. He bought oil, aluminum and cobalt at Russian domestic prices and sold it at world prices, which were often 10 to 15 times higher.”
Many pro-BRICS and anti-globalist commentators are excited about the possibility of a new currency or a new payment mechanism emerging from the BRICS summit at the end of October. I’m not so optimistic. Multilateral negotiations are complex, and payment mechanisms involve a lot of technical details. One idea that seems feasible and feasible in the not-too-distant future is a messaging system for bilateral trade. But that doesn’t solve the problem of secondary banking sanctions.
Originally Reuters; Crosspost Info BRICS
Russia and China could start setting up a barter trading system, three trade and payments sources told Reuters, with an agricultural deal expected as early as this autumn as the two countries seek to limit the use of their U.S.-supervised banking systems.
Bilateral payment delays were a key topic on President Vladimir Putin’s agenda when he visited China in May. Although workarounds have emerged, such as using smaller regional Chinese banks whose activities are difficult for Washington to track, payment problems remain.
Barter deals allow Moscow and Beijing to avoid payment issues, reduce scrutiny of bilateral trade by Western regulators and limit currency risks.
Russia is developing restrictions on barter trade and assumes China is doing the same, according to Russian sources Reuters spoke to. All of the sources are closely involved in bilateral trade and asked not to be named because the information is private.
The head of a major Russian bank said plans for a barter exchange were in the works but gave no details. A source working in the payments industry said a food export deal with Russia was in discussions. Russia’s Ministry of Industry and Trade and China’s Ministry of Commerce did not respond to questions about any goods barter deals.
History of Barter
China and Russia have a history of barter trade: in 2019, China agreed to exchange $150 million worth of palm oil from Malaysia for construction services, natural resource products, and civilian and defense equipment.
In 2021, Chinese companies exported $2 million worth of auto parts to Iran in exchange for pistachios.
Barter transactions between Moscow and Beijing were common from before the collapse of the Soviet Union until the 1990s, but the deal under discussion would be the first in about 30 years, the people said.
“I remember in the early 1990s, there was a lot of barter trade between China and Russia,” said Kyle Shostak, vice chairman of Qifa, a China-Russia joint venture that aims to ease bilateral trade woes with digital payments.
“Then, with the development of the banking sector, the entire business, the entire trade between Russia and China was completely switched to bank payments.” Shostak said that once regulations are fully in place, the Kifa platform will be ready to facilitate barter transactions.
In February, the Russian Ministry of Economy published a document advising Russian companies on how to conduct barter transactions and pointing out pitfalls to avoid.
The 15-page document includes a step-by-step guide to calculating costs and duties, explains the necessary accounting requirements and provides contract templates for different types of barter transactions, including bilateral, multilateral and consignment transactions where a third party uses factories.
The document explains that barter transactions are a good way to avoid international payments and cash transactions.
The Russian Economy Ministry did not respond to questions about the document or the barter trade plans with China.
A Russian government source said barter trade was a solution to the huge problem of payments for both sanctioned and civilian goods, and lamented that Putin’s visit to China had not improved the outlook as much as hoped.
“There are political issues that need to be resolved but they have not been resolved despite his boss’s visit to China,” the official said.
Another source at a Russian industrial company said there were discussions between the companies about buying machinery from China in exchange for Russian metal exports.
“Open Book”
According to sources, the transparency of traditional trade channels is an obstacle to bilateral trade between China and Russia, as is the lack of a direct payment mechanism between the two countries.
SWIFT, the international financial messaging system, remains an option for banks not subject to sanctions, but it is “a fully transparent international banking system for friendly countries, including the United States,” the payments intermediary told Reuters.
“They are closely monitoring this open book. So the situation would be calmer if SWIFT were not used to carry out interbank transactions between Russian and Chinese banks.”
The Bank of Russia’s Financial Message Transmission System (SPFS) and China’s CIPS payment platform have not yet been fully linked.
“Currently, there is no IT airlock yet linking these two systems, so the bridge is still either SWIFT or remote banking services available in almost any bank’s software,” the payments intermediary said.
Elvira Nabiullina, head of the Russian Central Bank, has previously spoken about the BRICS Bridge Payments System, which would link the member states’ financial systems.
Progress has been slow: A Reuters source close to the project said the bridge won’t begin accepting digital currency payments until 2028.
