After repeated warnings over the past couple of years, Turkey and Russia have signed a pact to increase use of the ruble and lira in cross-border payments, with Turkey signing on to Russia's alternative to SWIFT, the international telecommunications protocol used by banks and central banks the world over.
Though SWIFT is an international cooperative owned by its members, with more than 10,000 banks worldwide relying on its system for handling sizable inter-bank transactions, the safety of the network was brought into question after a series of cyberattacks in 2015 and 2016 resulted in the theft of $101 million from the Central Bank of Bangladesh.
For the first time since SWIFT's laucnh, the hacks stoked doubts about the system's safety, and prompted many US rivals, including Russia, to ramp up work on their alternatives to SWIFT.
Erdogan and Putin
In addition to Turkey, China and Russia have signed agreements to bolster trade between the two countries, including settling a larger percentage of their bilateral trade in rubles and renminbi. For China, bilateral trade with Russia grew from $69.6 billion in 2016 to $107.1 billion last year. China is Russia's biggest partner for imports and exports.
There has also been talk about India joining Russia's SWIFT alternative as Washington continues to threaten New Delhi with sanctions over its decision to purchase Russian-made missile-defense systems.
According to Reuters, Russian Finance Minister Anton Siluanov signed the agreement with Ankara on Tuesday. The agreement, signed on Oct. 4, will encourage the two countries to start using Russia's system in mutual settlements.
The agreement envisions Turkish banks and companies becoming connected to the Russian version of the SWIFT payment system, while enhancing the infrastructure in Turkey to allow Russian MIR cards, designed by Moscow as alternative to MasterCard and VISA, to work.
Though President Trump on Tuesday reiterated his love and respect for Turkish President Recep Tayyip Erdogan, it's worth remembering President Putin's warning about the potential ramifications of American sanctions, which risk undermining the dollar's dominance of the global financial system by driving more countries to use alternatives to SWIFT.
For example, President Trump's sanctions against Iran prompted Washington's European Union allies to try and launch their own SWIFT alternative to make payments to Iran.
As Putin warned, American sanctions against Russia are a "colossal strategic mistake" and eventually risk undermining the dollar-based hegemony of the global financial system.