China and Russia Adopt Digital Payments to Bypass Sanctions and US Dollar Dominance

In a world where traditional finance is often slow and politically charged, China and Russia are forging a new path. They’re increasingly turning to digital payments to grease the wheels of trade, sidestepping the complexities and delays imposed by sanctions and the dominance of the US dollar. Are we witnessing the dawn of a new financial order?

Why the Shift to Digital Payments?

• Bypassing Sanctions: Traditional banking routes are often blocked or significantly slowed down due to international sanctions, especially those imposed on Russia.
• Speed and Efficiency: Digital payments offer near-instantaneous transactions compared to the days or weeks it can take for traditional bank transfers.
• Reducing Reliance on the US Dollar: Both nations are actively seeking to decrease their dependence on the dollar in international trade.

Sanctions have turned routine banking transactions into logistical nightmares, with clearance times stretching into months. This has forced both countries to seek quicker, more reliable digital alternatives. Platforms like Qifa, operating between Beijing and Moscow, are playing a pivotal role.

According to a Reuters report, digital payments, including cryptocurrencies, can slash transaction times to as little as a day. As fewer Chinese banks are willing to risk secondary sanctions, these digital methods are becoming essential.

The De-Dollarization Drive

The adoption of digital payments is more than just a matter of convenience; it’s a strategic move to challenge the dominance of the US dollar in global trade. The BRICS nations, in particular, have felt the sting of the dollar’s influence.

Consider these points:

• Economic Instability: Fluctuations in the dollar’s value have caused economic turbulence in countries like Brazil.
• Capital Flight: India’s stock market has suffered when US investors withdraw funds.
• Sanctions Pressure: Russia and China have both faced US sanctions, hindering their international trade activities.

Russia has been proactive in seeking alternatives. The country now permits the use of stablecoins like USDT for international settlements, and there’s ongoing discussion about fully legalizing cryptocurrencies for foreign trade.

Last year, over half of China’s trade payments with Russia were settled in RMB, signaling a clear shift away from the dollar. The BRICS nations are also developing BRICS Bridge, a system to link their financial networks using central bank digital currencies (CBDCs).

Vladimir Putin recently stated that 90% of trade between Russia and China is now conducted in their local currencies, rubles and yuan. This de-dollarization trend will be a key topic at the upcoming BRICS summit in Russia in October 2024, where leaders will discuss strategies for further reducing reliance on the US dollar.

What Does This Mean for the Future?

The increasing use of digital payments between China and Russia, and the broader BRICS initiative to create an alternative financial system, could have significant implications:

• Reduced US Influence: A successful shift away from the dollar could diminish the United States’ economic leverage.
• Increased Financial Autonomy: BRICS nations could gain greater control over their economies, insulated from US financial policies.
• Rise of New Financial Technologies: The development and adoption of CBDCs and other digital payment solutions could accelerate.

While the US dollar isn’t going to disappear overnight, these developments signal a potential shift in the global financial landscape. The BRICS nations are positioning themselves as leaders in a new, multipolar financial order.