Putin: Sanctions may benefit Russian economy but MasterCard, Visa made mistake

Economic sanctions may benefit Russia by helping de-offshorize its economy and create better conditions for doing business inside the country, President Vladimir Putin said.

“Many people who take their savings and business to low-tax areas are already thinking whether it would be better to carry out all of their economic activities, including registration, at home,” the president said at the Media Forum on Thursday, April 24.

“As for de-offshorization, the Russian authorities are facing many important and necessary tasks to create better conditions for doing business inside the country,” he said. “This means the tax system, its stability, rates, the fight against excessive bureaucratization and corruption, and many other things.”

Putin believes that sanctions will also prod the Russian authorities into working harder and taking measures to strengthen the sovereignty of the national economy by creating a national payment system or drafting a law on enhanced sovereignty in strategic industries.

“The world is globalizing and the economy and politics are closely interdependent but excessive dependence leads to the loss of sovereignty,” Putin said with regret and cited the country’s gold and currency reserves as an example. “Some countries with large gold and currency reserves diversify them one way or another,” he added.

“We did not create our own settlement system as Japan or China did, and this makes us completely dependent on our partners,” the president said. “We have always believed that our partners, both Visa and MasterCard, are depoliticized economic entities and companies. However, as it turned out, they, too, are under strong political pressure and influence and give in to it right away,” he said.

“This is a very big business for these companies. By acting the way they are acting in Russia, they are undermining trust in themselves and therefore will certainly lose the market,” he said.“From the economic point of view, this is a big mistake because MasterCard and Visa control 90% of the Russian market, which we gave to them of our own free will, and all payments inside the country go through these systems and to a large extent through serves located in the United States. But that’s nonsense! Why did Japan do it and can use a national payment system now, but we are using their [American] systems inside the country, I am not saying abroad where you go on a business trip or vacation,” Putin said

At the same time, he noted that the Russian authorities were not planning any retaliatory sanctions against MasterCard or Visa. “However not only have we thought about it but we have also started creating our own national payment system,” Putin said.

Putin said in March that Russia would create its own payment system. “These systems work successfully in such countries as Japan and China. They started off as national systems for domestic needs only but are now becoming increasingly popular,” he said.

The Japanese system now operates in 200 countries. “Why shouldn’t we do the same? We should and we will,” Putin said at a meeting with the leadership of the Federation Council, the upper house of parliament.

The Central Bank of Russia is already making plans for creating a national payment system in the country.

“We should create a system that will ensure uninterrupted domestic payments that make up about 90 percent of the total. We are preparing measures that should be realistic, easy and gradual. At the initial stage we should ensure technological compatibility between processing and operating centers of major banks so that they could switch over quickly,” Central Bank Chair Elvira Nabiullina said.

A draft law ensuring uninterrupted money transfers within Russia will go to the State Duma, lower house of parliament, shortly. It bans all participants from terminating transfers unilaterally. Clearing centers will not be allowed to provide information about money transfers outside the country or make such information accessible from other countries.

In 2011, several MPs called for creating a domestic processing centre. The relevant law was adopted but processing operations were not transferred to Russia despite the risk of losing access to international payment systems for Russian banks. This is precisely what happened on March 21, 2014 when Visa and MasterCard, both headquartered in the United States, suspended operations for several Russian banks.

The blocking of access to the SWIFT inter-bank payment system makes online payments in any currency, except the national one, impossible.

Presidential adviser Sergei Glazyev suggests creating a single processing centre for payments within the Commonwealth of Independent States and the Customs Union created by Belarus, Kazakhstan and Russia.