How Russia Can Avoid Financial Sanction Using China’s Digital Currency

The Russian military offensive in Ukraine did not surprise many because Russia has been threatening to deal with Ukraine’s decision to host a foreign military post in its territory for some time now.

Following Russia’s attack on Ukraine on the 24th of February, NATO and its allies have been planning to slam extreme sanctions on Russia, its public and private officials aligning with the government, and both public and private businesses operating outside the shores of Russia.

The latest action taken against Russia is cutting it from the global financial payment system, SWIFT, and preventing the country from carrying out any international financial activity.

The action of NATO member states could pave the way for the emergence of a digital currency issued by the central banks of most countries like the one developed by the People’s Republic of China, named the Digital Yuan.

According to a Bloomberg Analyst, Andy Mukherjee, the United States economic stability foundations are the USD, SWIFT, and CHIPS. They have global appeal, and using them against Russia might be the catalyst to convince China, the U.S. direct economic rival, to up their game and build an alternative global currency to shield themselves against any impending action against them by the U.S.

Enter China

According to multiple reports, China has already set to create a strong alternative to the popular Clearing House International Payment System (CHIPS) by building its own unique international payment system called Cross Border Interbank Payment System (CIPS).

Additionally, in contrast to CHIPS, which settles international transactions using American dollars, China’s CIPS is designed to carry out transactions with its native Yuan. However, an interesting thing to note is that CHIPS controls about 40% of the global financial markets shares, while CIPS, on the other hand, holds a measly 3% of global financial activity.

The analyst also concludes that China can use the Digital Yuan (e-CNY) to try and consolidate its position in the world’s financial markets. And the Chinese Central Bank has declared that the Digital Yuan is ready for cross-border transactions.

Moreover, China can persuade countries under international sanctions like Russia to adopt the e-CNY because the Digital Yuan is a blockchain-based payment settlement system capable of disrupting the traditional payment system.

Why The Financial Sanctions May Not Work

An economist from John Hopkins, Steve Hanke, believes that slamming sanctions on Russia may affect the West. According to him, cutting Russia off the international payment system mat seems sensible, but the risks far outweigh the aim of the sanctions. Any move by Russia can defeat the purpose of the sanction.

The analyst noted that the global financial system is heavily dependent on the dollar, which may give rise to another alternative, especially from countries like Russia and China.

That does not mean that the U.S. economy is set to hot the rocks, far from it. But the imminent creation of an alternative global payment system could pose a challenge to the dominance of SWIFT and CHIPS in the future.

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