To circumvent Western sanctions, Russia and China plan to revive the centuries-old practice of barter trade, Reuters reported on Thursday.
The deals could relate to the agricultural sector and could be concluded as early as autumn, the news agency reported, citing anonymous sources from trade and payments. A source at a Russian industrial company told the news agency that Russian firms were also discussing exchanging metals for Chinese machinery imports.
Such agreements are being discussed as trade between the two countries becomes increasingly difficult amid tightened Western sanctions against Russia over its large-scale invasion of Ukraine in February 2022.
About 80 percent of bank transfers made in Chinese yuan were recently rejected without explanation after being delayed for weeks while banks decided whether the transfer could be completed, Russian media outlet Kommersant reported last month.
Before this year, Russia and its trading partners circumvented sanctions by using smaller banks and other means of payment or currencies other than the U.S. dollar to evade the Western ban. some Russian banks from the widely used messaging system SWIFT.
However, this strategy has encountered obstacles since the United States Secondary sanctions Financial institutions that supported Russia were targeted. These restrictions prompted Global banks out of China to the United Arab Emirates, Turkey and Austria in order to reduce transactions with Russia.
Since barter does not require monetary payments, Russia and China could avoid such problems.
Russia has previously engaged in barter trade
It would not be the first time that Russia has used barter.
It was practiced during the Soviet era And in the years following the collapse of the bloc. China was an important trading partner at that time.
In August 2022, the Taliban regime in Afghanistan also discussed a barter deal with Russia, which could include trading Russian crude oil products for raisins, minerals and medicinal herbs, according to Russian state news agency RIA Novosti.
Iran, which is subject to heavy sanctions, and the Indian government also held talks with Russia about barter in the first months of the Ukraine war.
Last year, cash-strapped Pakistan approved the barter trade of certain goods with Russia.
It is unclear whether either party ultimately concluded a trade with Russia.
Thus, the large economy of India has managed to circumvent payment problems and become one of Russia’s most important trading partners.
Problems with barter
However, barter is not widespread in modern society.
“The exchange of goods for other goods would have to be recorded manually, which would pose great difficulties for any large or technologically advanced company using automated accounting systems,” Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center, wrote in a September 2022 blog post.
Barter also makes tax collection more difficult, she added.
The Russian authorities are working on other ways to circumvent Western payment sanctions.
The country is rushing to set up alternative payment systems, including cryptocurrencies, to facilitate trade.
