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Russia’s Alternative to Western Credit Card Debuts in London

Russia will next year diversify its foreign currency holdings in its National Wealth Fund

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Employees demonstrating a payment card
Employees speak while demonstrating a payment card during a tour at a branch of VTB bank in Moscow, Russia. VOA

A Russian backed bank payment card, introduced after Western sanctions upended Russia’s financial system five years ago and prompted Visa and Master card to deny electronic services to some of the country’s leading banks, is set for its European debut on London Wednesday, when a pilot project will be launched in collaboration with the Dutch global payment company PayXpert.

Moscow authorities hoped to get the MIR card accepted eventually in foreign markets, but progress has been slow outside Russia for the MIR payment system,  which operates outside of Western-controlled international financial systems such as Swift, which banks use to transfer money.

The pilot project with PayXpert “will lay the foundation for new promising trends in the foreign expansion of Russian payment cards,”  according to Vladimir Komlev, the head of Russia’s National Card Payment System, which operates the MIR system.

De-dollarization efforts

The effort is seen by analysts as part of the  Kremlin bid to de-dollarize the Russian economy to lessen the sting of Western sanctions. A Russian Finance Ministry official this month told Reuters that Russia will next year diversify its foreign currency holdings  in its National Wealth Fund, which supports Russia’s public pension system, aiming to lower the share of dollars in the fund’s reserves.

Dmitry Dolgin of the Dutch banking group ING said in  a report this month that de-dollarization efforts are now obvious across most sectors, including local business loans and bank-held international assets, although he said the dollar’s role  has actually increased in company and household savings and cash assets, partly because dollar interest rates have been higher than those offered for euros.

Credit Cards offers unique features
American Express, Visa and Master Card is displayed in this image. Each Credit Card offers unique features and benefits, along with unmatched privileges. Pixabay

U.S. authorities have been able advance sanctions by targeting companies that use dollars, and the establishment of electronic payment systems not tied to the dollar or largely controlled by U.S. businesses is one way for the Kremlin to reduce the impact of the West’s serial punishment of Moscow. Washington and the European Union have imposed a wave of sanctions since 2014 to punish Russia for the 2014 annexation of Ukraine’s Crimean peninsula, alleged meddling in the 2016 U.S. elections, and the poisoning of a defected Russian spy in England.

Komlev told Reuters this year that “In the next three years we want MIR cards to be operational in countries where Russians are used to traveling.” He projected MIR cards would be operational at some banks in at least a dozen countries by the end of this year. Turkish banks started to conduct transactions this year with MIR, which means both “peace” and “world” in Russian.

MIR was launched initially as a national payment system, with the first cards issued in December 2015. Russia’s leading bank, state-owned Sberbank, started issuing them in October 2016, and by the end of last year more than 70 million MIR-based cards had been issued by 64 Russian banks. The Kremlin has mandated that state welfare and pension payments must be processed through the system by next year, along with salaries paid to civil servants.

The card has a long way to go before it rivals VISA our Mastercard internationally. It is not accepted by international shopping platforms or major online booking services for airlines and hotels, although APEXX Fintech, a British start-up global payment company, said Thursday it would now start working with the MIR system. Among smartphone applications only Samsung has concluded an agreement with the MIR system.

Meanwhile, de-dollarization has been moving quickly. Russia’s Central Bank has currency swap deals in place with Iran, China and Turkey, allowing direct trade to be conducted in local currencies instead of U.S. dollars. Russia reportedly lost $7.7 billion in its bid to reduce dollars held in its reserves. Some of the dollars were turned into gold, and since January the bank has purchased 96.4 metric tons of gold.

People stand in line as they wait to enter the bank with their card
People stand in line as they wait to enter a branch of Sberbank of Russia bank. VOA

Alexei Zabotkin, head of the Russian Central Bank’s monetary policy department, has conceded that it would be impossible to completely empty the country’s foreign exchange reserves of dollars, as this would be  “fraught with excessive risks.” According to central bank data the  National Wealth Fund has $45.5 billion, 39.17 billion euros and 7.67 billion British pounds.

In August, the state-controlled Rosneft oil giant announced it would stop using the U.S. dollar for its export contracts.

ALSO READ: India Grapples with Credit Issues

Nonetheless, analysts say there are limits on how far Russia can de-dollarize – the ruble is highly volatile and remains unattractive for investors and de-dollarization brings additional and sometimes prohibitive trading costs.

European regulators will be watching the London project closely. EU officials have been sympathetic about Russia’s de-dollarization bid, suspecting that as a spin-off the euro will be boosted as an international currency. In June the European Commission concluded that “the euro clearly stands out as the only candidate that has all the necessary attributes of a global currency that market participants could use as an alternative to the U.S. dollar.” (VOA)

Next Story

Contradicting Alcohol Stereotypes, A More Sober Russia Emerges

Russians leading healthier lives and living longer

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A tub filled with Alcohol and Ice
People think Russians drink only vodka, but it just isn't true anymore. Pixabay

Alcohol consumption by Russians has dropped by half over the past decade and now sits at levels that are lower than those of Western countries such as France and Germany, a recent study shows.

The World Health Organization study found that between 2003 and 2016, Russian alcohol use fell by 43%.

Russia “provides a powerful example of success for other countries to reduce the enormous health and economic burdens stemming from alcohol,” the report said.

The findings are proof that the enduring stereotypes of Russia as a vodka-swilling nation are increasingly out of touch, Russian alcohol consumers say.

“People come to the bar not to get drunk, but to rest, relax, and enjoy whatever drink it is that they prefer,” said Alexander Cherkasov, manager of Pasternak Bar, one of a wave of “craft beer” establishments that have swept Moscow and other Russian cities in recent years.

alcohol
A glass of beer is pictured in a craft beer bar in Kazan, Russia, June 19, 2017. REUTERS/ VOA

“People think Russians drink only vodka, but it just isn’t true anymore,” Cherkasov added.

Pouring through history

Russian drinking — and state efforts to curb it — is an old story in Russian history, with vodka, considered Russia’s national drink, at the center of events.

According to legend, Vladimir the Great chose Christianity over Islam because of its lax approach to liquor.

“Drinking is the joy of Russia,” the Grand Prince allegedly said. “We cannot do without it.”

In the 1980s, then-Soviet leader Mikhail Gorbachev tried to curb his country’s fondness for drinking, blaming rampant alcoholism for the Soviet Union’s poor economic performance. Strict dry laws did reduce alcohol consumption, but people joke today that the laws eventually took the Soviet Union with them.

In the 1990s, President Boris Yeltsin’s legendary thirst — and public gaffes — were a source of national shame. They also reflected a grim post-Soviet reality: Alcohol-related deaths were spiking nationwide amid turbulent political and economic change.

In contrast, President Vladimir Putin has set a more sober tone — preferring sporty photo-ops and rarely venturing for a drink in public.

Analysts say that beyond Putin’s carefully managed image, he has introduced smart policies aimed at taming Russian alcohol thirst.

Russian President making a toast
Russian President Boris Yeltsin makes a toast during a meeting with graduating cadets of Russian military schools. Yeltsin discussed the situation in Yugoslavia with his Defence minister on Monday and Russia sent more planeloads of equipment and supplies for its peacekeepers in Kosovo. (From the Archives). VOA

“The fact is, regulation works,” said Evgeny Yakovlev, a leading authority on anti-alcohol policy at Moscow-based New Economic School. “And if you want to reduce alcohol consumption, you can do it,” he added, pointing to Putin’s embrace of liquor taxes, restricted sales hours, and an outright ban on alcohol advertising as examples.

Different tastes for younger drinkers

Changing tastes also explain the shift in alcohol consumption, with younger Russians, in particular, choosing to drink differently than their elders.

“I don’t really enjoy getting drunk, so that’s why I prefer beer,” said Alsubek, who works at a Moscow coffee shop and says he stopped drinking vodka entirely. “I just don’t feel good the next day.”

Polina, 21, a student from St. Petersburg, said: “It’s fashionable these days to go to a bar where they have a craft beer or cider, but we do it really to talk more than drink.”

An outcome of reduced drinking is that Russians are leading healthier lives and living longer. The WHO report cited Russian men for gains in average life expectancy — now at 68 years compared to 57 in the early 1990s.

ALSO READ: Teenagers Who View Beer Ads Likely To Start Drinking: Study

The report also notes that anti-tobacco laws introduced in 2013 are playing a role.

“I’ve noticed that young people are drinking less and playing sports more,” said Sergey Kovalerov, a construction engineer with two grown children. “I don’t drink as much as I used to, either, but I won’t say no to a drink at parties or on the holidays. That’s just normal.” (VOA)