Russia sanctions: Tech cutoff is bad, but credit service suspension 'unbearable' for average citizen
Russia will try to swap over to a Chinese card service
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The announcement that American credit card companies will suspend services in Russia has delivered the most devastating blow to everyday citizens, an economics expert told FOX Business.
A number of American tech companies have suspended services in Russia, including Apple, Google and Microsoft, but Joel Griffith, a research fellow for the Institute for Economic Freedom and Opportunity at the Heritage Foundation, said the credit card services will do by far the most damage.
"When it comes to going to subway stations and not being able to use Google or Apple Pay for those transactions, but now it comes to – like Americans – Russians rely on Visa and Mastercard services, and you compound it with so many companies pulling out … like Ikea is pulling out, a lot of automobile manufacturers, these sanctions will have rippling effects for everyday Russians," Griffith told FOX Business. "This is making life not just inconvenient but almost unbearable."
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Russian President Vladimir Putin attends a flag raising ceremony via a video link at a state residence outside Moscow. | Getty Images
Visa and Mastercard announced Sunday the suspension of all services in Russia, and in the case of Visa all cards originally issued in Russia. American Express followed with an announcement of similar sanctions just hours later, cutting Russians off from the most widely-used credit card services globally.
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Reuters reported that Russia will attempt to switch over to Chinese card service UnionPay in order to bolster Russia’s Mir network, but Griffith argued that China’s service is not ready to adopt the Russian banks.
"Our infrastructure has been developed over decades and we’ve been cutting edge," Griffith said. "The Chinese system is not fully ready for them to be tapping into, so there is no full alternative [to American systems]."
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"And to the extent that Russia is trying to tap into the foreign reserves that China has, they’re going to run into a lot of roadblocks."
The Biden administration froze Russia’s access to U.S. dollars, meaning that Russia has to find willing third-party partners to take the dollars off its hands, and few partners will be looking to work with a company that has suffered such severe isolation on the international stage.
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"When it comes to the real sanctions that matter more than anything else, it’s blocking the central bank from accessing some $600 billion in foreign reserves, which is a lot more for them than it would be for us," Griffith explained. "If you think of that in terms of our economy, it would be the equivalent of blocking off $12 trillion. This is a really big blow."
All of this will push the already staggering 20% inflation rate even higher. The Russian government has kept the stock exchange closed in order to prevent a sell-off and send its economy into a death spiral.
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"It’s enormous," he added, noting that the Russian ruble has lost over 60% of its value since the invasion began. "When you see the ruble decline in value against other currencies … that is a real impact on consumers."