Russia’s Economy: Russia, China May Use Exchange Soon

Such arrangements are being discussed as trade between the two countries has become increasingly difficult amid tightening Western sanctions against Russia following its large-scale invasion of Ukraine in February 2022.

Recently, about 80 percent of bank transfers made in Chinese yuan have returned without explanation after being blocked for weeks while banks decide whether they can trade, Russian media outlet Kommersant reported last month.

Before this year, Russia and its trading partners avoided sanctions by using smaller banks and other forms of payment or currencies other than US dollars to circumvent the West’s ban on some Russian banks from the widely used SWIFT messaging system.

However, this strategy has had problems since the US endorsed it secondary sanctions targets financial institutions that aided Russia. These restrictions determined global banks FROM China to the United Arab Emirates, Turkey and Austria to reduce trade with Russia.

Since barter trade does not require monetary payments, it would allow Russia and China to avoid such problems.

Russia also used barter trade

It would not be the first time that Russia has used barter trade.

It was practiced during the soviet era and in the years after the collapse of the bloc. At the time, China was a key trading partner.

In August 2022, the Taliban regime in Afghanistan also discussed barter trade with Russia, which could involve trading Russian petroleum products in exchange for raisins, minerals and medicinal herbs, according to RIA Novosti, a Russian state news agency.

Heavily sanctioned Iran and the Indian government were also in talks with Russia to practice barter trading in the early months of the Ukraine war.

Last year, cash-strapped Pakistan authorized the exchange of specific goods with Russia.

It is unclear whether either side ultimately reached any barter agreement with Russia.

The major economy, India, managed to overcome its payment problems to become one of Russia’s main trading partners.

Problems with barter trade

Even so, bartering is not widely practiced in modern society.

“The exchange of goods for other goods would have to be accounted for manually, which would create major difficulties for any large or technologically advanced business that uses automated accounting systems,” wrote Alexandra Prokopenko, a fellow at the Carnegie Russia Center Eurasia, in a September 2022 blog post.

Bartering also makes tax collection difficult, she added.

Russian authorities are working on other ways to avoid Western payment sanctions.

The country is rushing to create alternative payment systems, including crypto, to facilitate trade.