Venezuela - Central Bank chief Calixto Ortega wants Russian tech in the banking system
Turkish banks implemented the ruble-based payment system earlier this month, prompting Washington to protest.
Venezuela’s central bank president Calixto Ortega Sanchez has been holding meetings with the Kremlin since March about adopting Russia’s MIR payment system.
Ortega Sanchez, 38, was named Central Bank chief in 2018 after serving as a diplomat in Houston, taking the reins of CITGO and representing Venezuela before the United Nations. Among Maduro’s key operators, Ortega Sanchez is considered by some to be one of the government’s last remaining technocrats. He is a savvy internationalist.
Ortega’s interest in Russia’s MIR is part of a shift driven by the Kremlin to settle payments with friendly nations through a system that sanctions cannot touch. Five Turkish banks adopted the MIR system earlier this month. On September 6th, Reuters reported that Russia’s VTB bank performed its first yuan-denominated transactions. That means it bypassed SWIFT. Iran is also interested in non-US dollar, non-Euro settlements.
Russia set up MIR to compete with Mastercard and Visa settlement networks. It was a move in response to Russia’s 2014 invasion of eastern Ukraine, which prompted sanctions by the US. One of the ways that Russia’s MIR helps get around sanctions is the networks’ integration with China’s UnionPay. When the February 2022 invasion prompted the United States to impose harsher sanctions on the Russian economy. Mastercard and Visa promptly withdrew services.
There are a lot of reasons why Venezuela’s Ortega might want to adopt MIR and give Venezuelan government agencies and firms a sanctions workaround. Venezuela is growing significant acreage planted to soybeans - ostensibly for selling to Iran. Caracas needs to pay defense firms for weapons and other security imports from China.
If Ortega’s MIR policy works for Venezuela, other Latin American leaders who fear US sanctions and want a geopolitical hedge might join. It is also possible that Moscow or Beijing pressures for trade deals that demand using non-US financial infrastructure, like the system VTB is using to get around the US dollar altogether.
"The launch of the yuan transfer system will significantly simplify the work of Russian companies and individuals with Chinese partners, increasing the popularity of the yuan in our country," VTB’s Andrei Kostin told Reuters.
This has implications for blockchain firms operating in Venezuela and Latin America. US-aligned banks and crypto firms that comply with Western standards will find themselves hanging onto Venezuela’s balancing act. Zelle, a digital Bank of America payment system, is one of the main ways that Venezuelans remit cash from the US. If Ortega takes another step further and sets up a Digital Bolivar on top of Russia’s leased out MIR infrastructure, there will be two competing financial systems.
Maduro will take advantage if it makes sense. If Russia builds a blockchain platform for bilateral, cross-border payments that satisfies a significant share of international trade and transactions, president Nicolas Maduro will probably take the credit and use the financial stability to his advantage. He is likely to stay in power if he can pull this off and use it to improve the economy. Russia’s Central Bank on 6 September suggested that it was “impossible” to avoid using crypto for cross-border settlements in the current geopolitical environment. Reading between the lines, adopting MIR is not the end game for Ortega and Maduro. It is the beginning.
On the other hand, if the government enforces a Digital Bolivar operating on Russia’s MIR with the same dysfunction as it deployed the Petro cryptocurrency, then it is conceivable that Bitcoin and Lightning Network firms like MUUN wallet could see take up the slack on cross-border payments. Opposition leader Leopoldo Lopez is promoting Bitcoin and Lightning projects through his alliance with the Human Rights Foundation. A dysfunctional MIR or Digital Bolivar currency will be fuel for Lopez’ much desired political comeback.
But first thing is to see how the MIR system is implemented and what it is actually used for in Venezuela. So far, there is no indication that Calixto Ortega’s Central Bank has a plan to use a Venezuelan-coded blockchain for a non-Western payment system. He might not need to. Russian technology could do the job for him.