Sanctions against Russia have led Visa and MasterCard to stop processing some Russian transactions (Buisnessweek.com). Electronic currency is widely used in the modern economy and without it the velocity of money would surely decrease. While this will surely hurt Russia’s economy, Moscow claims they can easily replace Visa and MasterCard with their own internal system.
“Moscow has been preparing for the past few years to issue an electronic payment card that citizens could use for transactions with the government, such as tax and pension payments. Expanding that to include private purchases wouldn’t be hard, says Avivah Litan, an analyst at Gartner Research (Buisnessweek.com).”
Whether Russia is actually capable of implementing the infrastructure necessary for this type of currency is up for debate. However if Russia is successful, it could cause huge problems for the US credit card companies. The firms have to make huge upfront investments in order for their cards to work in an economy. For example, Visa recently spent 40 million dollars to upgrade their infrastructure in the Sochi area. One thing is for certain; the effects of international conflict are felt all around the global economy.
Source:
http://www.businessweek.com/articles/2014-03-24/russia-gets-ready-for-life-without-visa-and-mastercard
2 Comments
I believe in Russia’s claim that it can easily get rid of Visa and MasterCard if they want, because it’s very likely that a big nation like Russia has its own established system. Just like in China there is a widespread national network called YinLian. So unfortunately Visa’s recent spending in Sochi is likely to go south. That said, there’re downsides for Russians as well. One of them is that tourism in Russia may be hurt since tourists can no longer pay with Visa/MasterCard.
What if the U.S. pushes stronger sanctions? so that many of Russia’s trade partners also stop trading with Russia? Even if the economic sanctions may hurt the U.S. economy, I do not think it will be as great as it will hurt the Russian economy.
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