VTB, a Russia-based state-controlled bank with $280B in assets, began supporting transfers to China in yuan. Purchases of yuan in Russia have increased by 800% this year after the Russian invasion of Ukraine and ensuing sanctions.

Why should we care?
Russia’s deepening partnership with Chinese banks may appear as a savvy and simple move to get around the exclusion of state-owned banks from the SWIFT payments network. But, according to Robert Hockett, a law professor at Cornell, the real cost of being booted off SWIFT is not the loss of payments capacity, but rather the loss of access to capital. “New payment technology has made it easier for groupings of like-minded countries to establish their own payment systems,” Hockett said. “Because it is the dollar system that gives SWIFT its principal clout, no such development is going to work any miracles for any countries looking to get out from under Western financial sanctions.” Stated differently, as long as western banks’ credit lines utilize centralized networks like SWIFT’s, then banks facing sanctions can’t use nascent technologies like cryptocurrencies to work around them, as, among other issues, these newer means of transferring money still don’t operate on an institutional scale. Russia is attempting to create its own bloc and SWIFT alternative, turning to countries like China, Turkey, and India; but there’s been a tepid response thus far from banks in those countries to abandon dollar-based systems. This presents further incentive and justification for Western governments to prop up SWIFT, while leaving crypto-based technologies to their own (volatile) devices.