Fantastic plastic: cards to usurp cash in Russia

The country’s Ministry of Economic Development is going to force more companies in Russia to accept credit cards.

Officials claim their plans can turn upside down the entire market for non-cash transactions in Russia.

According to an insider source cited by the Izvestia newspaper, the ministry is looking forward to establishing strict limits of cash payments between citizens and legal bodies. In addition, all trade and service businesses will be obliged to accept payments through credit cards.

The changes could be backed by the government and parliament as early as this autumn, and by 2012 they would already become effective.

Currently, around 20 percent of shops and centers in big cities (up to 80 percent in the entire country) do not accept bank cards. For their part, many Russian citizens do not have bank accounts.

The idea was first voiced by the head of Sberbank, Herman Gref, who this past June told Prime Minister Vladimir Putin that the country loses around 1 percent of GDP because of its high level of cash operations. Meanwhile, Russia’s cash-to-GDP ratio is 11.9 percent, which is much higher than in most developed countries. Gref also stressed that a high volume of cash operations means the shadow economy is thriving, taking around 40 percent of the country’s market.

The fight against the shadow market is ongoing – many Russian ministries are now involved in developing a new strategy that could help tackle the issue. The new measures suggested by the Ministry of Economic Development have the same goal.

The current proposal calls for the reform to apply to all organizations with an annual income of more than 400 million rubles ($1.3 million). The limit of cash payments has yet to be defined.

Economists, however, say that the reform could face serious legal obstacles. According to Article 140 of the Civil Code, all money operations with citizens who are not registered as individual entrepreneurs can be performed in cash. Another problem is the contradiction of the reform with Article 74 of the Russian Constitution, which forbids limiting the free flow of money.

This is not the first attempt to “digitalize” Russia. This past June, it was announced that Russia is setting up its own national payment system, with Russians still being able to use Visa and Mastercard.

This past April, Moscow authorities came up with a proposal for electronic cards that could help residents more easily work through bureaucratic procedures.

Dubbed the “Swiss Army knife of the electronic world,” the card was supposed to help Russians do almost anything – from paying their bills online to scheduling an appointment with a doctor.

The cards will be available to Muscovites by the end of 2011, as specifically ordered by Moscow Mayor Sergey Sobyanin.

Other cities are also joining the electronic rush. St. Petersburg has promised to go online in the next few months. As for the cards, they can be obtained from January 2012. By 2014, they will become universal policy.

President Dmitry Medvedev hopes the initiative will help cut down on red tape. The system will cost the government around $5.2 billion to implement.

Some, though, have voiced their concerns about the security of such cards, claiming that once they are lost, the information could be obtained by anybody.

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