Iran-Russia Cooperation in Banking and Finance

ECONOMYCOMMENTARY 23.07.2022
Yasir Rashid Researcher

Iran-Russia cooperation in banking and finance within the framework of Russian financial systems will provide an opportunity to bypass Western sanctions against the two countries.

The developments of the war in Ukraine and its consequences for world politics have had significant effects on Tehran-Moscow relations and paved the way for the expansion of the cooperation between the two countries in the fields of politics, security, economy, and trade. The improvement of Iran-Russia cooperation in banking and finance and especially the monetary agreement between the two countries constitutes one of the most important aspects of bilateral cooperation between Iran and Russia. Although the efforts to improve the partnership in these fields started several years ago, Russia’s Ukraine invasion has accelerated the implementation of the cooperation.

As a part of the cooperation in banking and finance, the trading symbol of the rial-ruble currency was launched in the integrated Iranian foreign exchange market, simultaneously with the visit of Russian President Vladimir Putin to Iran on July 19, 2022. In this context, Iranian Central Bank Governor Ali Saleh Abadi stated that trade in riyals and rubles has started, and a good step has been taken with the transaction of two million rubles. Saleh Abadi also added that trading in local currencies in the Iranian foreign exchange market would further strengthen the economic relations between Iran and Russia, and it may cut the role of other foreign currencies such as the US dollar and euro in the Iranian market. Speaking on the issue, Dmitry Peskov, the spokesperson of the Russian President, also announced that they abandoned the use of US dollars in bilateral transactions. It is considered one of the economic outcomes of Putin’s Tehran visit and the visit of the Iranian Central Bank Governor to Russia on July 7, 2022. 

Tehran and Moscow are trying to develop a local finance-bank exchange system between the two countries that allows them to avoid the SWIFT system. In this regard, Peskov stated that Iran and Russia are negotiating to establish a single banking system in order to fight against the US sanctions. After the Russian invasion of Ukraine and the imposition of severe Western sanctions on Moscow, Iran’s Ambassador to Russia Kazem Jalali said Tehran and Moscow are set to discuss recognizing Russian financial messaging system, especially the MIR financial system cards. After Russian invasion of Crimea in 2014 and the imposition of Western sanctions on Russia, Moscow developed two systems named System for Transfer of Financial Messages (SPFS) and MIR to reduce the dependence on Western financial messaging systems. 

The SPFS is the Russian equivalent of the SWIFT financial transfer system designed by the Central Bank of the Russian Federation and guarantees uninterrupted transmission of financial messages within Russia. MIR financial system cards are designed to be an alternative to VisaCard and MasterCard. The first MIR debit cards were launched in 2015, and a total of 112 million MIR cards were distributed to customers until January 2022. Currently, more than 50% of Russians have at least one MIR debit card. More than 25% of financial transactions in Russia are performed through this system. Pensions, social assistance, and the salaries of the workers of the budgetary institutions in Russia have been transferred to the MIR payment system. Moreover, at the end of 2020, the Russian government encouraged the use of the MIR card by announcing that it would cover 20% of the domestic travel expenses of Russian tourists if the card was used. Later, this incentive was increased to 25%. 

Apart from Russia, many banks in countries such as Türkiye, Vietnam, Armenia, Uzbekistan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, and the de facto regions South Ossetia and Abkhazia on the territory of Georgia accept MIR credit cards. After the Ukraine invasion of Russia and the implementation of Western sanctions against Moscow, Iran has become the ninth country that plans to join the list of countries using Russian financial systems. Iran was excluded from the SWIFT system in 2012 due to its nuclear activities.

Tehran and Moscow did not give any further details regarding Iran’s recognition of the SPFS and MIR systems. Both Iran and Russia are facing sanctions from the Western financial system (SWIFT). Therefore, it is possible to say that recognizing the Russian financial messaging system is an opportunity to bypass Western sanctions against the two countries. Participation of Iran in the Russian financial messaging system has the potential to improve cooperation between the two countries in the fields of finance and banking. Nevertheless, it is noteworthy that the trade relations between the two countries are not large enough to fill the gap in Russia-West or Iran-West trade. So, the relevant financial cooperation is unlikely to facilitate foreign trade between the two countries. Besides, it should not be forgotten that the supply of rubles in the Iranian market will not have a crucial impact on the exchange rate of the dollar in this country. It stems from the fact that the use of rubles will only be valid in trade relations of four billion dollars between the two countries and the dollar will maintain its position as a powerful currency in Iranian foreign trade with other countries. Therefore, it can be said that the development of financial and banking cooperation between Iran and Russia has a political aspect, and this cooperation will not create a miracle for increasing Iranian foreign trade.

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