The Shetab (Interbank Information Transfer Network) system is an electronic banking clearance and automated payments system in Iran.
According to the Central Bank, in the first phase of this action, Iranian tourists can withdraw rubles from Russian ATMs, and in the second phase, which will be implemented before the new year, Russian tourists can receive rials from Iranian ATMs. In the third phase, which will be implemented after the current year, Iranian tourists will be able to make purchases from Russian stores using their Shetab cards.
So far, eight banks have been connected to Russia's Mir payment card network, and cardholders of these banks can make purchases in Russia just like they do in Iran.
Farzin, speaking at the 11th Conference on Modern Banking and Payment Systems, referred to the connection of Iran's banking network to Russia's Mir as an achievement of Iran's banking system and said, "We are currently in the first phase of the system, and it is operational, although slow. We are working to develop this section and hope to implement the second phase, which allows Russian tourists to make purchases in Iran using Mir cards at Iranian terminals, by winter."
Farzin said, "The third phase is the use of Iranian POS systems in Russia, which we hope to achieve early next year, and we plan to continue this trend with other countries."
Regarding the settlement basis in destination countries, Farzin said, "Russians have accepted the floating exchange rate of Iran's market, and currency exchange for tourists will be done based on this market rate."
Farzin stated, "We have eliminated the dollar from our transactions and are working based on rials and rubles. We hope to take this step with other countries as well."
Farzin added, "Today, our Shetab network, with 99% accessibility and processing time of less than 2 seconds, is one of our strongest payment infrastructures."
Alternative international payment platform
Iranian banks have been cut off from the global SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment system since 2018, as part of a series of sanctions imposed after the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2015. Russian banks have also been disconnected from SWIFT since 2022, but Moscow has been seeking an alternative international payment platform. To this end, connecting Russia's Mir network to Iran's Shetab network has been a long time coming.
The idea was first floated in 2017 by Valiollah Seif, then chief of the Central Bank of Iran. In August 2022, Mehdi Safari, deputy foreign minister for economic diplomacy, announced that Russia's financial payment system would soon be launched in Iran. In April 2023, Ehsan Khandouzi, Iran's economy minister, confirmed that the two countries' banking networks would be connected, allowing Russian and Iranian traders to conduct transactions without relying on international networks or foreign currencies. The first phase of the Mir-Shetab connection has now been completed.
The plan is to extend this platform to other countries with significant financial and social ties to Iran, such as Iraq, Afghanistan, and Turkey.
Iran and Russia have pledged to use local currencies in bilateral transactions and develop banking cooperation to overcome the sanctions imposed on them and limit the dominance of the US dollar in bilateral financial transactions.
The connection of Russia's Mir and Iran's Shetab payment systems is a step towards countering the financial sanctions imposed on both countries, which have been cut off from the SWIFT system.
The connection of the banking networks for financial transactions based on local currencies, the Iranian rial and the Russian ruble, without the need for another currency, helps to mitigate exchange rate risks and is considered a significant leap forward in trade between the two countries. This is particularly important for Iranian traders and investors.
Boosting Russian tourism
According to Kazem Jalali, Iran's ambassador to Russia, one of the goals of this initiative is to create an attractive economic and tourism opportunity for both Iran and Russia.
Jalali believes that the most significant factor is the creation of new monetary and banking concepts between the two countries, which has now removed a large part of the financial and banking obstacles between them.
He added that if they can also remove the financial and banking obstacles in the tourism and trade sectors, they can significantly increase trade with Russia. According to the latest statistics, Russia's foreign trade reached nearly $297 billion in 2021.
Solving problems in transferring funds to Iran
Abdollah Mahajer Darabi, deputy head of the Iran-Russia Chamber of Commerce, also believes that the connection of the Mir and Shetab networks will help solve problems in transferring funds to Iran, particularly in the Eurasian region and Russia.
He considers the connection of the Iranian and Russian payment card networks a positive step towards developing banking relations between the two countries.
Darabi stated that individuals traveling to Russia will no longer need to exchange dollars, as rubles can now be transferred based on a fixed exchange rate between Iran and Russia. This is a positive development that the private sector welcomes, and it will help solve problems in transferring funds to Iran in future phases.
He added that currently, Iranian traders export goods to Russia and receive dollars and rubles in return, but face difficulties and high costs when trying to bring the money back to Iran. However, he hopes that in future phases of this project, these problems will be resolved, and the trade process will be facilitated.
Facilitating financial transactions and trades between Iranian and Russian businessmen
What are the benefits of connecting Russia's Mir network to Iran's Shetab network? Experts believe that the infrastructure for agreed-upon offshore rial (rial offshore) transactions at the Iran Currency and Gold Exchange Center will pave the way for a boom in foreign trade and facilitate financial transactions and transfers for Iranian and Russian merchants and traders.
According to them, the launch of the offshore rial and the connection of the Mir and Shetab networks are significant because they eliminate the need for intermediaries and middlemen to impose additional costs on Iran's foreign trade and commerce with Russia, particularly in the current sanctions environment.
In other words, with the offshore rial and the connected Mir and Shetab networks, Iranian and Russian merchants and traders will be able to conduct transactions directly, without the need for intermediaries, thereby reducing costs and increasing the efficiency of trade between the two countries.
Uncertainty on efficiency of Iran-Russia banking network
Some experts have raised concerns about the effectiveness of the recently established connection between Iran's Shetab banking network and Russia's Mir network.
While some experts believe that this connection will facilitate financial transactions and make it easier to conduct business using international cards, they argue that the main issue is the exchange rate. Iran has multiple exchange rates, and it is unclear at what rate the Russian ruble will be converted in Iran. To upgrade the network's efficiency from small-scale to large-scale transactions, the issue of exchange rates must be resolved.
If the conversion rate is low, the network will not be effective for commercial transactions, as the private sector and government have not agreed on a conversion rate. The private sector does not accept the official exchange rate of the Russian ruble, and the government does not recognize the market exchange rate. Merchants can only use this banking system if they are willing to exchange their export earnings.
According to experts, if Iran adopts a single exchange rate and connects its Shetab network to Russia's Mir network, the use of the US dollar in trade between the two countries can be eliminated, reducing transaction costs and bureaucracy. For merchants in the private sector, the most important benefit is the reduction in transaction costs. With a single exchange rate, an Iranian exporter will no longer need to ask their Russian customer to pay in dollars or dirhams outside of Russia; they can sell their goods for rubles and receive rials in Iran.
Experts also point to other uncertainties, such as the defined withdrawal limits for different types of bank cards, considering that cash withdrawals from the banking system are more limited in Russia than in Iran, and most financial transactions are conducted using bank cards.
This infrastructure can contribute to the development of trade, and by connecting these networks, Iran and Russia have managed to link their banking systems outside of SWIFT. While this exchange is attractive for Iranians in Russia, it is unclear whether the conversion of rubles to other currencies will be possible in Russia.
Stepping off the isolated island
On the other hand, economists believe that the connection between Russia's Mir network and Iran's Shetab network should not be expected to be a miracle solution. However, Iran's banking system can use this opportunity to align itself with the global banking system, as Iran's banking system has been isolated, like a remote island, and the connection between the two networks is a good starting point for identifying areas of difference between Iran's banking system and those of other countries.
The connection between the Iranian and Russian banking systems is a good start, but it will take a long time to achieve the desired results. Nevertheless, the first steps have been taken to harmonize the software, accounting, and auditing systems of Iranian banks with those of Russian banks, which can serve as a precursor to aligning them with international systems. This opportunity can be used for Iran to align itself with the systems and frameworks that have previously cooperated with the world.
Limitations on currency transaction limits
Bahador Hosseini Hashemi, a banking expert, said that while this action will have a positive impact on meeting personal needs, it is essential to note that these cards have a transaction limit, and the amount of currency that can be transferred in or out of the country, as well as the exchange rate and settlement process, needs to be clarified. However, for tourists and traders, this can be beneficial for small transactions and travel expenses.
He added that since these cards have a limited transaction capacity, they cannot be used for commercial purposes. If the transaction limit is increased, then this connection can be beneficial for commercial and business purposes. However, the implementation of this section depends on trade agreements between Iran and Russia, and the necessary mechanisms for settling transactions need to be established.
The expert pointed out that when Iranian merchants do not have access to international cards such as Visa, Mastercard, or Eurocard, this connection can be helpful for travel expenses and some money transfers. However, currently, these cards do not have many capabilities for commercial purposes.
He noted that there are concerns about the control of currency entry and exit and the security system, as our card information will be handed over to another country, and security controls and firewalls will be problematic.
Hosseini Hashemi said, "However, as much as the monetary relations and agreements are made, it can accelerate commercial settlements. But I personally do not know how much this plan will help in commercial matters. We need to see how it is defined in the monetary agreements between the two countries, and how effective it will be."
He added, "In trade, a bank should be a mediator to ensure the obligations of both sides are fulfilled. The payment process should not be such that a merchant receives the money, but the goods are not sent, or the merchant sends the goods, but the money is not received." He also mentioned the importance of preventing money laundering in this connection and said, "It is possible that some crimes may be committed using this tool, but in general, this action is better than nothing."
About the expansion of this action to Iraq, Turkey, and Afghanistan, he evaluated it positively and said, "Perhaps this method will be more effective in Afghanistan because Afghans who come to our country for trade will have a better transfer process."
Positive consequences of banking system with balanced trade
Shahram Moeini, a banking expert, said that a country's banking system facilitates trade exchanges, and the connection of Russia's Mir network to our Shetab network has positive consequences for the country.
According to him, when trade between two countries is balanced, this type of transaction is more applicable. For instance, when Iran exports $1 billion to Russia and Russia exports the same amount to Iran, it means the two countries have a trade balance. Therefore, there is no need for a third-party currency exchange, such as the US dollar, beyond the currencies of the two countries involved.
Moeini added that when a third currency, such as the dollar, is introduced in trade between two countries—specifically the rial and the ruble—this occurs when one of the countries has a trade surplus.
He stated that when our country exports $5 billion worth of goods to Russia but imports only $1 billion from Russia, there is a trade imbalance. In this case, the $4 billion surplus in rubles is not beneficial for our country; we are compelled to convert this surplus into a widely accepted currency, like the dollar, to make purchases elsewhere. However, overall, it can be said that this arrangement is beneficial, especially if trade between the two countries is balanced.
NOURNEWS