Russia has turned to China for the microchips it requires, to keep up with rising demand for its local bank cards
Due of Western-led sanctions that have cut Russia off from international payment systems, it has turned to China for the microchips it needs to meet the rising demand for its local bank cards.
While Chinese manufacturers can provide quick fixes to Russia’s beleaguered financial institutions, many believe they will not be able to significantly alleviate the growing economic problems of the country.
Since the United States and its allies imposed sanctions on Moscow in reaction to its invasion of Ukraine, chipmakers such as Intel, AMD, TSMC, and Qualcomm have ceased exports to Russia.
Supply chain constraints in Asia triggered by the COVID-19 outbreak have also had an impact on chip supplies.
Banks have been unable to meet the growing demand for cards that run on the government-sponsored MIR system, according to Oleg Tishakov, a board member of Russia’s National Card Payment System (NSPK), speaking at a conference earlier this month. According to estimations by the Reuters news agency, NSPK issued almost two million MIR cards between the end of 2021 and March this year, increasing the total to 116 million.
Tishakov said at the conference that they were looking for new suppliers of microchips. “We have discovered a couple in China, and the certification process is underway.”
The impact of the sanctions on the Russian economy is felt in the country’s capacity to operate in foreign currencies and acquire specialized technology.
The SWIFT global banking, communications system has been shut off for several of Russia’s largest banks, essentially blocking nearly half of the country’s $640 billion in foreign exchange reserves and gold. MasterCard and Visa have also ceased servicing Russian accounts outside of Russia, while Apple Pay has cut ties with MIR.
Despite the worldwide shortage of microchips, especially due to certain essential gases to create them coming from Ukraine — bankcard chip technology is not particularly advanced or restricted to countries that adhere to Western sanctions.
For years, Iran, for example, has used chip-and-pin payment systems.
In the near run, China may be able to fill the gap, but the blockage may force Russia to abandon the archaic system entirely and transition to cardless payments.
Hassan Malik, a senior sovereign analyst at Boston-based investment management company Loomis Sayles, told the reporters that “many emerging and frontier economies in Africa and elsewhere have overtaken branch and card-based banking by adopting mobile phone banking over the years.”
“Russia has a high literacy rate, as well as widespread smartphone and internet use, and Russian banks have aggressively invested in app-based banking.”
Isolated from the global economy is a phrase used to describe a country that has been cut off from the rest of
A shortage of bank card chips is unlikely to cause Russia considerable economic harm, but a consistent supply could provide some solace to the country’s increasingly sanctions-weary populace by allowing them to conduct domestic financial transactions more seamlessly.
“The problem for ordinary Russians is that Putin’s Russia has been cut-off from the world economy,” said John R Bryson, a professor of entrepreneurship and economic geography at the University of Birmingham.
“Local adaptations, such as the System for Transfer of Financial Messages (SPFS) and MIR, are standalone systems that are not part of the global financial system. They allow for some type of daily life in Russia, but one that is mostly cut-off from the rest of the world.”
After Russia’s connections with the West deteriorated following Putin’s annexation of Crimea in 2014, MIR and SPFS, an alternative to SWIFT, were developed. Even though both were attempts by Russia to strengthen its economic sovereignty and independence, they were geographically limited. MIR, for example, has limited domestic support and is backed by a tiny number of Russia-friendly countries such as Vietnam, Belarus, and Georgia’s separatist territories of Abkhazia and South Ossetia.
Although it has called for “maximum restraint” and peace talks between the sides, Beijing has refrained from overtly denouncing Moscow’s incursion and expressed sympathy for Putin’s alleged security concerns.
Despite, Western concerns, China‘s economic and geopolitical standing affords it a greater berth to connect with Russia. However, bridging the chip gap is not without risk.
Despite directly violating existing sanctions, Chinese companies could face extra punishment if the West deems their activities to have provided Putin with an unacceptable amount of support.
“While China has made it clear that it will not engage in financial sanctions against Russia. It will also be wary of putting its own companies and financial institutions at risk by assisting Moscow in evading Western sanctions,” Joe Mazur, senior analyst at Trivium, a China-based policy research company, told the reporters. “Beijing will do its best to avoid intentionally violating Western sanctions, but this still leaves it open to partnerships with non-sanctioned Russian banks.”
Despite the fact that Chinese President Xi Jinping has refrained from endorsing the invasion of Ukraine,Beijing continues to view Moscow as an important strategic partner, with Foreign Minister Wang Yi saying last month that China and Russia will “firmly move forward they form a comprehensive strategic coordination partnership”represents a new era.”
Some Russian banks have also issued cards in collaboration with China’s UnionPay payment system, providing an alternative to Visa and MasterCard for Russians living in other countries. However, it is unclear how long such partnerships will endure. UnionPay will no longer partner with major Russian banks, including 75% state-owned Sberbank, according to Russian media site RBC. According to the story, the Chinese payment system took the decision out of fear of secondary punishments, citing various unnamed sources.
While the chips themselves are dubious to be game-changers, a few observers consider China’s openness to cope with Russia and refusal to observe the West will be critical for Putin.
“Putin and Xi have a comparable worldview in a few ways, and China is unwilling in charge Russia for its sports in Ukraine,” Mazur said.
According to Bryson, the University of Birmingham professor, the danger for President Putin, who appears to be preoccupied with the need to project a strong-man-image, is that Russia becomes overly reliant on China and its trade, resulting in a submissive relationship with one of its closest allies.
“This would be hilarious because Putin’s Ukrainian war is partly about Russia’s ability to remain a superpower and partly about a misguided view of Russian nationalism,” he said.