Putin suggests ‘Mir’ payment system for Turkey
Russian President Vladimir Putin, during President Recep Tayyip Erdoğan’s Moscow visit, brought a proposal that Turkey should build the infrastructure of the “Mir” payment system of Russia. Is this possible? This system was established in 2015 covering local credit card payments in the Russian ruble. If Turkey forms the infrastructure of this system, it means that payment clearings of this system will be able to be done directly between the two countries. This is apparently an effort to use local currencies in mutual trade.
Mir, as the Troy national payment system here, is a joint card payment system enabling credit card debts to be swapped domestically. It does not have international interchangeability as Mastercard or Visa does. The aim of forming Mir is exactly this; to bypass these two international payment systems.
This system was established to counter sanctions imposed due to the Ukraine crisis when Russian banks were denied service by international credit card payment systems. This local credit card payment system was named Mir, meaning both “world” and “peace” in Russian.
The infrastructure of Mir to be formed in Turkey is not an ordinary technical proposal. Its logo and all the credit cards issued under it should be accepted in Turkish workplaces. It should be valid in ATMs and POS machines. The interchange should be made possible between buyers and sellers in Turkey and Russia, so that all credit cards in the system are accepted.
The addressee of Mir’s infrastructure in Turkey is Interbank Card Center (BKM). Russian tourists in Turkey will use this system. Very simply, this is for the annual 4.7 million Russian tourists visiting Turkey and spending an average of $3.5 billion who will be able to pay their debts in rubles when they return home. Thus, Russia could save billions of dollars in credit card expenditures, as long as the seller accepts in ruble.
Currently, when a Russian tourist spends from his or her credit card in Turkey, the seller receives from his or her own bank its equivalent of Turkish Liras. The credit card extract of the Russian tourist arrives as ruble debt and he or she pays in rubles. The real exchange comes when the bank in Russia and the bank in Turkey pays or receives in foreign currency. At the end, dollar comes out of the Russian bank and dollar enters the bank in Turkey. An international exchange is done. If you eliminate the mediator, then, in this example, Russia will not spend from its foreign currency stocks and Turkey will have a decline at its foreign currency income.
A new system of bilateral commercial interchange brings an extra cost. The established international systems do charge a commission but they have a minimal setting up cost. Also, the interchange center in Turkey, most probably BKM, will end up with plenty of rubles. Will Russia accept rubles in natural gas payments? I don’t think so.
Again, why should banks in Turkey want to have additional costs for this infrastructure? Mir would not work in Turkey. In short, Russia is trying to open alternative and costly windows to overcome the international isolation. But for this to happen, its currency should be a much-demanded one; a position that cannot be achieved by distancing from the environment of fully convertible channels.