Reliable Inferiority: What Russia's experience of living under sanctions teaches us
Over four years of war and extensive financial sanctions, Russia has constructed an alternative system of settlements for foreign trade that services the economy and trade flows totalling more than $700 billion with relative success. Russia is the first large economy to be subjected to a regime of partial disconnection from SWIFT, which means its experience will be of major significance for the global trade and financial system, the future of sanctions policy and the potential infrastructural fragmentation of the world economy.
Russian foreign trade has been transformed into a system in which alternative channels, including cryptocurrencies, netting and clearing schemes, and the use of 'transit' currencies such as the yuan and the dirham, have largely replaced traditional settlements in US dollars and euros. At the same time, this informal infrastructure has gradually been integrated into a system of state control, evolving from a spontaneous adaptation into a new norm of foreign economic policy.
The resulting parallel infrastructure for international payments consists of two interconnected circuits. One is internal and rouble based, while the other is external and denominated in 'friendly' currencies, often involving intermediaries and offshore jurisdictions. This system sustains trade turnover, but requires constant coordination and entails rising costs, turning sanctions circumvention into an institutionalised yet expensive process.
This restructuring has made it possible to preserve export flows, but it has rendered trade less transparent, more costly and more dependent on a limited number of partners, above all China, the UAE and several other Asian countries. The asymmetry in Russia’s trade and economic relationship with China appears particularly critical. China is effectively Russia’s main buyer of resources, its main importer and supplier of machinery and equipment, and its main payments hub. The yuan plays the role of a surrogate reserve currency for the Russian economy. In effect, this represents a degree of constraint on economic sovereignty that is rare by contemporary standards.
Strategically, 'grey' schemes and parallel payment systems make it possible to sustain foreign trade with relative success, but they do not resolve the core problems of a sanctioned economy. Instead, they merely postpone them and create an illusion of 'normalisation'. They help to maintain the current status quo, but they do not allow the economy to develop fully. In other words, they appear effective in the medium term while increasing the accumulated costs in the long term.
From the spontaneous emergence of bypass channels to the creation of a parallel infrastructure
Immediately after the introduction of broad sanctions against Russia in 2022, a process began of spontaneously building alternative routes for foreign trade settlements. First, the role of the Chinese yuan and other 'friendly' currencies increased sharply as substitutes for the dollar and the euro following Russia’s disconnection from the SWIFT payments system. According to the Central Bank, in 2022 the share of the yuan in Russian exports jumped from less than 1% to 16%, while the rouble’s share rose from 12% to 34%. In imports, the yuan accounted for around 23% by early 2023, compared with 4% a year earlier. According to the Ministry of Economic Development, in the first half of 2023, up to 75% of Russian-Chinese trade turnover, which by then had grown by more than 50% compared with the second half of 2021, was settled in yuan. In December 2023, the Central Bank estimated that the yuan already accounted for 35–37% of settlements in both exports and imports. The rouble accounted for a similar share of payments, while the dollar and euro accounted for less than 30%.
Second, schemes involving trade through offshore jurisdictions and intermediaries became widespread. Russian importers and exporters engaged companies in third countries, from the United Arab Emirates and Turkey to Armenia and China, as proxy buyers or sellers. For example, Turkish and Emirati businesses sharply increased supplies of machinery, electronics and car parts to Russia in 2022–2023, largely through the re-export of goods from the EU. Russia’s trade with Armenia, Kazakhstan, Kyrgyzstan and other 'loyal' countries grew several times over as they were transformed into transit hubs. Armenia’s exports to Russia in 2023 rose by more than 38%, and Russia’s share in Armenian exports exceeded 50%, mainly due to the re-export of European goods. At the same time, offshore payment chains emerged in the financial sphere. Payments for Russian resources, for instance, were made by Indian buyers not to Russia directly, but to intermediary accounts in Dubai denominated in UAE dirhams. From there, the funds were subsequently redirected to Russia in 'friendly' currencies or in the form of goods equivalents.
Thirdly, payments in cryptocurrencies and stablecoins began to be used, primarily for the import of sensitive goods. In the context of Russian banks’ disconnection from SWIFT and the risk of account freezes, by autumn 2022 the Central Bank of Russia had to soften its previous stance on cryptocurrencies (→ Re:Russia: Backup Crypto Exit). Russian companies — from small importers to large exporters of oil and metals — began unofficially using cryptoassets to pay for deliveries, particularly via jurisdictions such as Hong Kong, the UAE and offshore firms.
The spontaneously emerging 'grey' schemes were initially fragmented and partly hidden. By the end of 2023, however, they had grown to such an extent that they began affecting official statistics. By early 2024, Russian authorities shifted from encouraging spontaneous adaptation to a policy of systematising and institutionalising the 'alternative' foreign trade infrastructure.
For example, the first reports of demand for barter transactions in foreign trade appeared as early as 2022, but by late 2023, customs authorities acknowledged that the number of such deals was still limited and urged businesses to use them more frequently. In January 2024, the Ministry of Economic Development issued the ‘Navigator for Foreign Trade Barter Transactions’, prepared at the instruction of then First Deputy Prime Minister Andrei Belousov, and proposed creating a dedicated exchange for them. By the end of 2024, regional customs offices publicly reported on the first barter transactions they had processed, such as a Russian company in the Urals importing household appliances, building materials and other goods from China in exchange for flax seeds, and called on companies to expand this practice. In the second half of 2025, Reuters published an investigation into several fairly large barter deals of this kind. For example, Chinese cars were exchanged for Russian wheat (partners in China paid in yuan, while the Russian side purchased grain for roubles); transactions were also recorded involving metals, agricultural raw materials, equipment and even some Western goods under embargo. Although barter operations do not appear to have become a mass practice, they illustrate state sponsorship attempting to guide their development into a systematic and controlled practice.
However, other areas of development of parallel foreign trade infrastructure became more important.
Alternative payment systems, crypto trading and netting
Attempts to build alternative SWIFT payment systems, as well as attempts to integrate Russia into existing systems of this type, have so far had limited success. Russia has expanded the use of its SWIFT analogue, the System for Transfer of Financial Messages (SPFS), which became mandatory for financial organisations within the country. In January 2024, the Bank of Russia reported that 557 financial organisations from 20 countries, including banks from the EAEU, China and the Middle East, were connected to the system. However, international demand for SPFS appears to have been limited: according to Central Bank representatives, by April 2025 the number of participating countries had risen to 24, with only 584 organisations connected. The most significant event in SPFS history was integration with Iran’s SEPAM payment system (in early 2025, the Governor of Iran’s Central Bank stated that the systems were practically unified). Economically, however, this is more significant for Iran than for Russia, similar to the integration of Mir and Shetab payment cards.
Another, more important development has been the attempt to integrate Russian banks into China’s CIPS interbank payment system (→ Filatov: Reproducing power through infrastructure). By mid-2023, around 30 Russian banks were connected, according to Roman Chernov, former head of the Russian National SWIFT Association. The total number of transactions in the Chinese system increased by 50% in the first year of Russia's invasion of Ukraine, according to media reports. Nevertheless, Russian banks have not obtained the status of direct participants, have limited rights, and must operate through Chinese intermediaries who are direct participants.
More promising and significant have been crypto trade and netting. A key step by Russian authorities in building a system of settlements opaque to the West was the partial legalisation of cryptocurrencies and their de facto integration into Russia’s foreign trade system. From August 2024, industrial mining — the production of cryptocurrencies to ensure sufficient supply for settlements — was legally permitted. In September 2024, an experimental legal regime came into effect, officially authorising the use of cryptocurrencies in foreign trade (→ Re:Russia: Backup Crypto Exit).
What had previously been semi-legal was given a legal basis: pilot projects under the supervision of the Central Bank of Russia were approved, allowing companies to pay for imports in cryptocurrency. In December 2024, Finance Minister Anton Siluanov confirmed that the first batches of Russian goods had been paid for in Bitcoin mined in Russia and expressed confidence that the practice would expand.
The volume of such transactions grew rapidly: according to the Central Bank, by the end of 2024 and the first quarter of 2025, the 'volume of cryptoasset flows estimated to be attributable to Russians' had increased by 51% to 7.3 trillion roubles (around $75 billion), while 'the estimated balances of Russians on cryptoexchange wallets' totalled 827 billion roubles at the end of this period. The largest Kremlin-sponsored project in this area was the rouble stablecoin A7A5. According to a report by the owner of the A7 crypto exchange, fugitive Moldovan oligarch Ilan Shor, presented to Vladimir Putin, $89 billion was transferred through cryptocurrencies in 10 months of 2025, of which $68 billion went via the rouble stablecoin A7A5, issued in Kyrgyzstan and backed by deposits at Promsvyazbank.
According to estimates by Chainalysis analysts, between July 2024 and June 2025, the Russian crypto transfer market reached $376 billion, surpassing the previous European leader, the UK. This rapid growth was driven both by sanctions avoidance and by the desire of companies and wealthy citizens to preserve capital amid a weakening rouble and limited access to traditional currency instruments. Cryptocurrency has thus become not only a tool for foreign trade but also a channel for Russian residents to access reserve currencies. Overall, cryptocurrencies have evolved from a niche private instrument into a key component of Russian foreign trade settlements.
Finally, as noted above, the rouble and so-called 'friendly' currencies have effectively displaced hard currencies from Russian foreign trade settlements. Several phases of this process can be identified. In the first phase, regulatory innovations (such as the requirement to pay for gas exports in roubles) led to a sharp rise in the rouble’s share of exports in Q2–Q3 2022 – by the end of the year, it had reached almost 40%. At the same time, 'other currencies', primarily the yuan, spontaneously replaced the dollar in both exports and imports, reaching a share of almost 40% by late 2023–early 2024. Hard currencies thus accounted for just over 20% of settlements. The second phase began at the start of 2024 for imports and at the end of the year for exports: the share of 'other' currencies stabilised at 30%, the rouble rose to 55%, and hard currencies declined to 15% or less in 2025.
Chart 1. Dynamics of the currency structure of settlements for goods and services under foreign trade contracts, 2021–2025, %
a) exports
b) imports
However, it is important to emphasise that the growth of the rouble’s share did not reflect an increase in its international appeal or demand. Rather, it resulted from the adoption of mirror rouble-based clearing and netting schemes between exporters and importers (→ Re:Russia: Malignant Growth). Put simply, trade participants learned to operate without direct cross-border transfers in reserve currencies, using them only as 'units of account', similar to the early 1990s in Russia, when prices were quoted in dollars despite payments being made in roubles. In these mirror settlements, a Russian exporter leaves revenue abroad, investing it in imported goods, while the linked importer receives the goods in dollar terms and settles with the exporter in roubles domestically, effectively clearing mutual obligations. Based on this mechanism, Russia’s largest banks created a large-scale system of mutual settlements known as the 'Chinese track,' which was documented in a Reuters investigation in the spring of 2025 and by Russian economist Dmitry Nekrasov.
Netting schemes have proven both resilient and scalable. Yuri Chikhanchin, head of Rosfinmonitoring, boasted in a conversation with Vladimir Putin payment processing under such schemes takes only a few days, with fees comparable to standard international transfers via SWIFT. In other words, netting settlements are almost as fast and inexpensive as conventional banking, yet remain largely invisible to Western regulators, according to similar assessments by Nekrasov. This parallel settlement system appears reliable and continues to improve, enabling foreign trade (including dual-use goods) even under sanctions pressure.
Reliable but flawed: the successes and risks of the parallel settlement system
By the end of 2024, Russia had effectively established its own dual-circuit, combined system for foreign trade settlements. Domestically, payments are conducted primarily in roubles, often using the mirror schemes described above, through special rouble accounts (so-called mirror accounts) in Russian banks. Externally, settlements have shifted to yuan and other alternative currencies, routed through partner-country banks and offshore jurisdictions. For instance, Chinese importers and exporters use linked rouble and yuan accounts in affiliated banks, concealing the identities of the actual payers and recipients from Western oversight. Such schemes are structured with the participation of small Chinese banks and intermediary banks in third countries (→ Ayres, Tsering: China’s Facilitation of Sanctions and Export Control Evasion).
Russian authorities even provide state support for exports via the 'grey' infrastructure, directly participating in bypass operations. For example, the sanctioned Rosselkhozbank has reported that it has begun testing payments for grain in cryptocurrency, discussing the mechanism for such settlements with the Central Bank. Russian state banks are actively assisting clients in conducting foreign transactions ‘without disclosing details’. VTB head Andrei Kostin proposed classifying this activity as ‘top secret’, signalling the bank’s extensive involvement in circumventing Western sanctions and constructing hidden payment chains. At the same time, parallel import has been legalised and extended: the government has authorised the import of over a thousand product lines — from electronics to car parts — without rights-holder consent, effectively supporting 'grey' supply channels. And the Russian Ministry of Industry and Trade is coordinating this process.
Russia has built a new parallel foreign trade infrastructure integrated into its economic model. 'Grey' schemes, initially temporary loopholes, have become a stable mechanism under de facto state protection, and in practice form part of the state’s export support system. This allows the country to sustain export and import flows despite isolation from the 'dollar' financial infrastructure. Yet such shadow 'normalisation,' while mitigating short-term disruptions, carries long-term risks.
First, global economic fragmentation is underway. The emergence of parallel payment systems (SPFS, CIPS), domestic cryptocurrencies, and sanction-trade networks is splitting the global financial and trade system. International commerce is increasingly divided into a segment that runs through transparent, regulatory-compliant channels, and a segment that goes underground (→ Inozemtsev: Alternative Globalisation). This reduces the effectiveness of global financial rules, complicates anti-money-laundering oversight, and hinders control over the trade of sensitive goods. Sanctions as a policy tool lose part of their effectiveness, while trust between states declines. A precedent is emerging in which groups of countries can create closed economic blocs with their own settlement mechanisms, bypassing globally accepted standards. Broad financial sanctions, including disconnection from SWIFT, against a major economy such as Russia, have effectively expanded the 'alternative' trade and settlement sector, particularly with the support of China, one of the world’s largest economies.
Second, although in the medium term this parallel system provides a fairly stable functioning of foreign trade, it does not compensate for Russia’s disconnection from global financial markets and does not provide access to investment or credit. Attempts to replace Western borrowing through the issuance of sovereign bonds in yuan appear largely symbolic. In December 2025, the Ministry of Finance reported the first placement of federal loan bonds (OFZ) worth around 20 billion yuan (almost $3 billion) with yields of 6–7%, and plans for up to four new issuances on the domestic market totalling up to 400 billion roubles. However, these bonds are traded on the Moscow Exchange, itself under sanctions, and are largely inaccessible to most foreign investors, including Chinese ones. As a result, the main buyers are Russian banks and exporters already awash in yuan liquidity. Effectively, this is merely a domestic redistribution of funds already in yuan, not a channel for accessing external financing. The lack of access to global financial markets makes reliance on 'Chinese money' both necessary and highly limited.
Third, the parallel settlement system is inherently less stable and predictable, with far lower financial resilience: payments routed through long chains of intermediaries and via cryptocurrencies are vulnerable to disruptions. For example, sharp fluctuations in cryptoasset prices or technical failures on exchanges can devalue or freeze payments. Technical incidents — such as uninsured tanker accidents, lost crypto keys, or sanctions-related freezes of intermediary funds — can lead to direct losses. Consequently, revenues become less stable, with some funds held abroad or spent on intermediary services and risk premiums.
Fourth — and this represents one of the major risks for the Russian economy — there is a growing dependence on a narrow set of partners, above all China. The share of the yuan and Chinese infrastructure in Russian trade is enormous. China is now Russia’s main buyer of energy resources, its primary export partner, principal supplier of machinery and equipment, and simultaneously the main payments hub for foreign trade. The yuan functions as a surrogate reserve currency. This places Moscow in a highly vulnerable position: any shift in Beijing’s political will, for example tighter controls over unofficial schemes, could severely disrupt trade. Chinese banks already dictate terms: major state banks in China generally do not work with Russia, while smaller banks demand complex collateral or high fees. Russia’s economic dependence on China is far greater than its previous reliance on the Western-led global financial system.
Fifth, the operation of a parallel system eliminates transparency, reducing oversight by both the state and society. Transactions through offshore entities and cryptocurrencies are difficult to trace, creating a significant 'grey' zone in which government-endorsed schemes intersect with money laundering, embezzlement, and illicit arms or technology trading. The more the economy moves into the grey zone, the harder it becomes for the Central Bank and tax authorities to monitor cash flows. By supporting grey mechanisms and actively using them, the state simultaneously undermines its own control institutions — financial monitoring, customs regulation, and others. Over the long term, this risks spreading shadow practices domestically, creating tax collection problems and weakening the effectiveness of economic policy.
Strategically, 'grey' schemes and parallel payment systems allow foreign trade to continue but do not resolve the core problems of a sanctioned economy. They merely postpone these issues, creating an illusion of 'normalisation'. While they help maintain the current status quo, they prevent the economy from developing fully. Integration into global technology networks and access to broad capital markets remain blocked. Even in foreign trade itself, reliance on bypass channels under ongoing isolation leads to technological lag, higher costs, and structural declines in the competitiveness of Russian exports, which are sold at risk discounts, yielding lower profits and confined to a few markets, effectively a 'buyer’s market'.
Thus, the formalisation of 'grey' schemes is a double-edged sword: in the short term, it mitigates the impact of sanctions, but in the long term it exacerbates structural weaknesses and introduces new risks for both Russia and the global financial system. It would be more accurate to call them a ‘survival infrastructure’ that supports foreign trade but makes economic development both extremely difficult and dependent on the political will of external players, reducing incentives for the systematic normalisation of trade conditions.