Visa, Mastercard, and Russian Commerce

It’s very easy to keep faith in modern electronic payment systems when there is nothing going wrong with them. Russians in March 2022 did not have the same luxury. Due to the country’s involvement in the war with Ukraine, Visa, MasterCard, and several other payment platforms punished all Russians. They did this in three separate ways. They first stopped letting Russian cards be accepted by vendors outside of Russia, then they stopped letting non-russian cards be used to purchase things in Russia. Additionally, transfers between Russian banks and international banks became frozen. Thankfully the Russian government had been working on their own payment technology for years, but Russian consumers were still heavily hit by the inability to purchase from abroad. This situation highlights the fundamental fragility of financial technology and its subservience to governmental regimes. 

The stripping of card access highlights a key monetary mental error that  is rarely checked. People repeatedly confuse electronic transfer systems with money when in reality they are only a representation of it. This works very well in most situations because it speeds up transfers and allows people from many different countries to interact in ways that they wouldn’t be able to otherwise. Trust in an electronic payment system had real consequences for Russian consumers. E-commerce suffered a strong decrease as a result of the payment system cutoffs, as Russians were effectively cut off from the majority of the Internet. Goods which would have been easily accessible in the past became only achievable for oligarchs with smugglers or people who had access to precious metals or other forms of payment. The drop in value of the Ruble coming from general macroeconomic Russian instability meant that even Russians who avoided border laws suffered heavy financial losses. As a result of the entire network of online trade becoming disrupted, Russian versions of all online services started to become available. The instability of online payment platforms disconnected Russia from the outside world and

The war provided a reality check for Russians, which increased the relative value of real goods and all forms of power. Governmental power held strong because it did not need currency to coerce Russian citizens. Whether the economy was performing well or not, the government had a firm monopoly on lawmaking and use of force. Russian workers in the most essential industries also felt their value very strongly as even the massive shock of war could not significantly harm their status. Beyond these sectors however, Russian wealth and business suffered an enduring hit. Traditional methods of storing wealth became compromised by a devaluating currency and volatile business conditions. The only people who were able to hold onto their liquid assets were those who had shifted their rubles to gold or valuable goods before the invasion occured. They found workarounds through Saudi Arabia or other countries that were still friendly to Russia. Even when they were able to transfer their rubles to cryptocurrency or precious metals, the catastrophic drop of the ruble meant that their value was destroyed. It took a war of massive proportion to convince Russians that tying their financial well-being to the behavior of their government was a poor idea. 

March 2022 showed how interconnected international trade and domestic currency value were. Entering a war certainly damaged the value of the Ruble, but it was the rejection by Western platforms that caused the deepest damage. Currency, like all other goods, is subject to the demand for it. A payment platform no longer carrying the “good” of a specific currency necessarily decreases its potential for use and thus its value. On another note, the Ruble has surged in value recently, but that does not change the damage of the 2022 events. We would be called crazy to invest in a company where the good had the risk of becoming useful to 50% less people at any given time. 

The Russian card cutoffs of march 2022 show the danger of both electronic payment systems and the fragility of government issued currencies. However much someone thinks they can trust in the business of an electronic payment system, the fact remains that they are still subject to the human demand tides of the time. The fact that companies are based in countries also means that political relations can sever access to one’s funds at random. Also, government currency is unstable both in its acceptability and value. As helpful as military-backed currency is, use of force cannot overcome fundamental national financial rejection. Particularly in a world order that heavily penalizes military aggression, there is always a very real threat that the choices of ones leaders can impoverish the nation