Russia to accept tangerines as currency amid payment difficulties caused by sanctions

The author of the Telegram channel Resurgam reports that major Russian propaganda outlets like TASS proudly announced the following:

“Under the terms of the agreement, Russia will export 20,000 tons of chickpeas, while Pakistan will supply an equivalent amount of rice. Another contract stipulates that Russia will send 15,000 tons of chickpeas and 10,000 tons of lentils in exchange for 15,000 tons of tangerines and 10,000 tons of potatoes. Nasir Hamid, Pakistan’s Deputy Minister of Commerce, explained that the barter system was established due to ‘difficulties with settlements through other methods.’”

What does Russia’s move toward barter trade signify?

1. As Russia's ability to use traditional trade methods through third countries diminishes, largely due to sanctions, it is becoming increasingly difficult to bypass these restrictions. Many banks now refuse to process payments from Russia, limiting the country’s financial options.
2. The influx of foreign currency into Russia’s economy from civilian trade will gradually shrink. Previously, Russia would have received dollars or yuan in exchange for goods like chickpeas and lentils. Now, it can only sell items like tangerines for rubles within its own market. Essentially, Russia's economy is becoming more insular, recycling its resources without generating foreign currency.
3. Russia is shifting from full-fledged international trade governed by market principles to centralized, single-agent transactions. In the past, Moscow firms would have earned foreign currency for their exports and reinvested those funds into imports or other business ventures, increasing trading speed and margins.

Now, an export company is tying up its capital in Pakistani tangerines, which must meet certain standards and be sold domestically in rubles. However, there is no guarantee of demand for such a large quantity, and some of the investment could be lost due to spoilage. Normally, companies would reinvest foreign currency into necessary or profitable products, but now they are stuck with perishable goods.

Additionally, if the company has other international trade relations, it will still need to convert the tangerines into foreign currency, which is unlikely to be accepted as payment in most countries. For example, the UAE likely does not accept tangerines in lieu of currency.

Moreover, the range of acceptable currencies is narrowing—99.8% of currency operations on the Moscow Exchange are now conducted in yuan, up from 54% before U.S. sanctions in May 2024. The availability of yuan remains uncertain, as does its value. In October, the Central Bank of Moscow increased currency sales by 25 times to stabilize the yuan’s exchange rate. However, the yuan’s global depreciation helps Moscow maintain its rate for now.

“But that’s not the core issue,” the author emphasizes. “Under normal circumstances, the company would have completed several trade cycles by now and turned a profit, with minimal commission losses. In a barter system, however, the company first has to 'convert tangerines' into rubles domestically at a favorable rate—or even pay its employees in tangerines."

The process of converting tangerines into rubles and then into foreign currency increases demand for yuan as the only available option, driving up pressure on Russia’s Central Bank. Alternatively, Russia may need to engage in more barter deals with other countries to sustain trade, creating a precarious situation where the economy increasingly relies on unsustainable exchanges.

“There are many challenges inherent in barter trade,” the author concludes. “But the most significant trend is the decline in foreign currency inflows from the civilian sector and the distortion of market dynamics. Over time, working capital will be tied up in warehouses full of rubber boots or markets overflowing with rotting tangerines.”

Barter trade has its uses when the entire international market adopts it, but few are willing to set their economies back by centuries.