Russia approves law allowing use of crypto for global payments as it faces ongoing sanctions

KEY POINTS

  • The lower house of Russia's parliament on Tuesday approved a law that permits making international payments via cryptocurrencies, local media reported.
  • Russia's central bank is itself looking to move money across borders using crypto before the end of 2024, Governor Elvira Nabiullina said.
  • The U.S. and its allies have imposed innumerable sanctions on Russian individuals and entities in retaliation to its assault on Ukraine.

Russian lawmakers on Tuesday approved a new law permitting the use of cryptocurrency for international payments, as the country faces ongoing financial pressure from Western sanctions.

The State Duma, which is the lower house of the Russian Parliament, on Tuesday gave the initial greenlight to the new legislation, which would allow businesses to use cryptocurrencies for cross-border trade, local media reported.

"We are taking a historic decision in the financial sphere," Anatoly Aksakov, the head of the Duma, told lawmakers Tuesday, according to reporting from news agency Reuters.

Mati Greenspan, CEO of crypto market research firm Quantum Economics, said Russia warming to crypto made sense as bitcoin transactions "cannot be censored or blocked by any government or bank."

"Previously, Russia would not want to allow that kind of transactional freedom to its citizens — but now we're at the point that bitcoin is used so often in everyday commerce that the opportunity cost for them not to allow it is simply too great," he added.

Bitcoin prices have more than doubled in the past year amid optimism over the approval of the first U.S. spot bitcoin — and, more recently, ether — exchange-traded funds, as well as the so-called halving event which reduces the supply of newly issued tokens.

The world's largest digital currency is currently worth $66,000, according to CoinGecko data, up over 120% in the last 12 months.

Under pressure from sanctions

Growing tensions between Russia and the U.S. and its allies have led to innumerable sanctions on individuals and entities in Russia in retaliation to its assault on Ukraine.

The U.S., European Union and Britain are among the jurisdictions that imposed sanctions on Russia after its February 2022 invasion of Ukraine. They've continued to amp up pressure on the country, targeting President Vladimir Putin, Russia's financial sector, and countless oligarchs.

In addition to passing legislation allowing Russian firms the ability to transact internationally via crypto, the Russian central bank will also be given permission to move money overseas using private digital currencies.

Elvira Nabiullina, the Russian central bank governor, said Tuesday that crypto-based payments would begin taking place before the end of 2024.

"We are already discussing the terms of the experiment with ministries and departments, with businesses, and we expect that the first such payments will take place before the end of this year," she said.

The central bank's commitment to use crypto as a method of cross-border payment marks a reversal from the regulator's previous stance on the technology.

In January 2022, the Russian central bank proposed banning the use of crypto for transactions, as well as the mining of digital currencies, citing threats to financial stability, citizens' wellbeing and monetary policy sovereignty.

Separately, Russia is also exploring the implementation of a digital version of the ruble. Central Bank Governor Nabiullina said Tuesday that the regulator will look to move away from a pilot phase toward mass implementation of the digital ruble from July 2025, Russian news agency Interfax reported.

Central bank digital currencies, or CBDCs, are different from crypto. Unlike bitcoin and other cryptocurrencies, which have no central authority governing them, CBDCs are issued by directly by a government and are designed to replicate fiat currencies in the form of a digital token.

Can crypto help countries evade sanctions?

Quantum Economics' Greenspan said that Russia's move to accept crypto "makes total sense from a global trade perspective."

This will, he added, "help the Russians open up cross border payments with countries and businesses that would otherwise be closed to them due to U.S. sanctions." 

Other sanctioned countries have frequently attempted to circumvent such financial curbs through the use of cryptocurrencies. North Korea, for example, has on multiple occasions been accused of raising millions of dollars in crypto to help fund various state programs and evade foreign sanctions.

North Korean state-backed hacking group Lazarus was behind a huge heist on the Ronin Network — a blockchain that supports a popular nonfungible token (NFT) game called Axie Infinity. The hack saw cybercriminals make off with over $600 million worth of digital tokens, blockchain analysis firms Elliptic and Chainalysis have said previously.

Iran, too, has been accused of exploiting digital currencies to bypass international trade barriers.

Proponents of cryptocurrencies, on the other hand, also claim that the digital assets are a useful tool for countering illicit activities. That's because the networks that underpin them, called blockchains, are public and show a historical record of transactions that is cryptographically secure and can't be altered.

Russia legalizes crypto for cross-border trade amid sanctions (ampproject.org)

Reporting by Ryan Browne, CNBC, 30th July 2024