Tether-Dollar becoming increasingly important for Russian-Chinese trade

Das Wetter in Russland ist zwar eher bescheiden, kann im Juni aber auch angenehm sein. Bild: View of the Solovetski monastery, Solovki, Russia, June 2019. Von Sergej Gussev via flickr.com. Lizenz: Creative Commons CC BY 2.0 Deed

Secondary Financial Sanctions Hamper Commodity Trade Between Russia and China. As a Result, More Traders Are Turning to the Stablecoin Tether – and Simultaneously Modernizing Their Payment Systems.

As Russian commodity companies and their Chinese trading partners increasingly face difficulties executing bank transfers, they are more frequently settling payments using the stablecoin USDT (Tether).

The Canadian news service BNN Bloomberg reports, based on anonymous senior officials, that two Russian metal producers have started using Tether for transactions, even though they are not under sanctions. They resort to this method when delivering metals to China or importing machinery from there.

The Limits of Financial Sanctions

This news reveals both the effectiveness and the limits of financial sanctions. Numerous Russian companies trading commodities like steel, nickel, or wood are encountering problems receiving money for their deliveries or purchasing raw materials and equipment—even if they are not under sanctions themselves, and even if their trading partners operate in a country like China, where Western financial sanctions do not apply.

The reason lies in the secondary sanctions imposed by the U.S. These threaten to cut off Chinese banks from the dollar system if they process payments for sanctioned entities. It is presumably easier and less risky for Chinese banks to categorically refuse Russian customers rather than scrutinizing on a case-by-case basis which transactions are permissible and which are not.

Stablecoins come in handy here. Not only do they operate without banks—and thus without direct or indirect sanctions—but the transfers take mere seconds and cost minimal fees. Stablecoins are not just a tool to circumvent sanctions; Chinese and Russian companies are, almost inadvertently, modernizing their payment systems with them.

Not Just Sanction-Proof – But Also More Efficient

That’s why Ivan Kotzov, a Russian mathematician living in Dubai who works with Resolv Labs on stablecoins, explains that it has become common practice to use stablecoins in countries facing dollar liquidity issues or capital controls, not just in commodity trading.

The Russian Central Bank supports the practice, albeit with reservations. In November, Governor Elvira Nabiullina told the Duma that she endorses experiments with crypto payments in international transactions. However, she limits acceptance to cross-border trade and disallows advertising for it.

This report reinforces what the Wall Street Journal mentioned on April 1st, namely that Russian smugglers are increasingly using Tether to evade sanctions on weapons and drone parts. Stablecoins have become „indispensable for the Russian war machine.“

Thus, the sanctions are more effective than some anticipated, especially secondary sanctions, which have become a competitive disadvantage for Russian companies globally. However, the greater the pain they inflict, the more companies turn to stablecoins, particularly the Tether dollar, which has now become the preferred method for circumventing sanctions and capital controls.

The price that BRICS nations like China and Russia pay for this is that they do not break away from the dollar as intended; instead, they become even more entangled with it. Crypto does not weaken the dollar; it strengthens it. At the same time, the sanctions force Russia and China to use more efficient payment systems, which are years ahead of those used in Europe and the U.S. The illusion that sanctions still work in the age of cryptocurrencies could prove to be a bitter pill for the West to swallow.