Filenews 1 August 2022
By Dominic Dudley
Russia and Iran have begun to take some small - but important - steps towards ostracising the dollar from their bilateral trade, testing a system of settlements in their national currencies.
In July, after the visit of the governor of Iran's central bank Ali Salehabadi to Moscow, the Iranian Foreign Exchange introduced the rouble-rial pair.
With this arrangement, the two countries are given the opportunity to settle commercial debts in each other's currency. The first transaction took place on 19 July, for an amount of 3 million roubles ($ 48,000). On the same day Vladimir Putin arrived in Iran for talks with President Ebrahim Raisi and Supreme Leader Ali Khamenei.
Iranian media reported that the new system could reduce demand for dollars by $3 billion annually. Bilateral trade between Iran and Russia was worth 4 billion dollars in 2021, but with the West imposing on them a "pariah regime", the two countries hope to increase their bilateral trade soon to $8 billion dollars.
The new trade arrangement enables them to avoid the use of dollars and thus to circumvent the effects of sanctions submitted to them, in the case of Russia due to its invasion of Ukraine and in the case of Iran mainly because of its nuclear programme.
Iranian officials hope to extend the new bilateral settlement system to include the currencies of other of Tehran's other trading partners, such as the Turkish lira, the Indian rupee and the United Arab Emirates' dirham.
"We will open the process to other currencies in the future to have a diversified basket and reduce the influence of the dollar," Salehabadi said on July 21.
If this happens, a network of deals will emerge that will allow Iran to trade without having to resort to the dollar or the euro. However, the contracting parties may still be cautious weighing the risk of secondary involvement in sanctions.
Iran's deputy foreign minister in charge of economic diplomacy, Mehdi Safari, has proposed the development of a new interbank messaging system between Iran and Russia, which could act as an alternative to Swift, the main international system for such transactions, based in Belgium.
Many Russian and Iranian banks have been excluded from Swift, as part of the sanctions imposed against Moscow and Tehran.
Russia already has its own banking messaging system, the SPFS (Sistema Peredachi Finansovykh Soobscheniy), which was created after the invasion of Crimea in 2014. The Financial Times reported last March that this system is increasingly being used by banks for payments within the Eurasian Economic Union - a group that includes Russia's neighbours, namely: Armenia, Belarus, Kazakhstan and Kyrgyzstan. Iran has begun consultations to join the SPFS.
In June, Russia's Rostec announced that it had developed a blockchain platform called CELLS, which could replace Swift.
At the end of July, the governor of Iran's central bank told his country's media: "Two states that want to de-dollarize their transactions must develop a special system similar to Swift. In practice we have reached a beneficial agreement."
With these initiatives, Russia and Iran are following the path mapped out by other countries in their quest for maximum independence from Western networks.
China has developed since 2015 its own interbank settlement system, CIPS. In April, Russian Finance Minister Anton Siluanov called on the BRICS (Brazil, Russia, India, China and South Africa) to proceed with a closer interconnection of their payment systems.
However, these alternatives are governed by significant limitations. They can be slower, more costly, and more prone to errors...
Source: Forbes
