Moscow Considers Allowing Cryptocurrency to Bypass Sanctions

When you are Russian and only have bank accounts in Russia, how do you receive payments from abroad? This is the dilemma faced today by millions of Russians who previously traded with bank accounts located in foreign countries, and who are now applying Western sanctions, in retaliation for the invasion of Ukraine since February 24. While Putin’s government is looking for all kinds of alternatives to mitigate the effects of the sanctions – such as banning Swift transfer messages to the country’s most popular banks, the latest solution found is unprecedented. For international transactions with the Kremlin It plans to authorize payments in cryptocurrencies, these assets that are exchanged on the blockchain, without the control of a central authority.

“The idea of ​​using digital currencies in transactions for international settlements is being actively discussed,” Interfax news agency quoted Ivan Chipskov, head of the Financial Policy Department of the Ministry of Finance, as saying on Friday. In other words, a Russian consumer who has a crypto-asset wallet on an online platform or on a USB key (ledger) can use it to circumvent the ban with another crypto account holder.

Allowing cryptocurrencies as a means of settling international trade would help thwart the impact of Western sanctions, which have seen the arrival of Russia He added that traditional cross-border payment methods are “limited”.

The newspaper reported on Friday that the Finance Ministry is discussing adding the latest proposal on international payments to an updated version of a bill. VedomostiQuoting government officials.

Get out of addiction

For Moscow, the challenge is twofold. First, it is to support the ruble, the national currency that can no longer count on the frozen foreign exchange reserves held by the Central Bank of Russia. Indeed, in the event of a severe devaluation of the ruble, prices – which are already subject to strong inflation following the cessation of imports of foreign products – will rise only for Russians. Enough to weaken the population’s support for the regime and for the policies of Vladimir Putin, in the face of an economy already mired in a stunning recession. Central bank rate cuts have no other role but to support this war economy.

Also, in their daily lives, Russians have witnessed the closure of Internet banking and payment services one after another. After Visa, Mastercard, and American Express, other solutions such as PayPal, Google Pay, and Apple Pay followed, blocking millions of transactions made previously. To correct this, Moscow resorted to Chinese solutions.

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Another challenge to this interest in cryptocurrencies for the authoritarian regime is also participating in reducing the dependence of international exchanges on the dollar.

In this sense, the central bank is already maneuvering to experiment with the digital ruble, that is, a centralized digital currency (MNBC) to create a new monetary system within but also with its new partners, starting with China already at the forefront of e-yuan.

But it is clear that Russian officials want to go beyond the central bank’s plan (which chose to ban cryptocurrencies in favor of MNBC) and mandate the cryptocurrency market more broadly, while regulating it.

As the United States presses its allies to prevent hydrocarbons imported from Russia from being paid in dollars, a member of the Russian parliament has also floated the idea of ​​accepting payments in bitcoin (the most popular cryptocurrency in Russia, followed by tether, then-litecoin, Ethereum and Dogecoin, according to Brand Anaytics in 2021). ) against gas and oil shipments.

On this topic, discussions have been going on for several months, and although the government expects to legalize cryptocurrencies sooner or later as a means of payment, a consensus has not yet been reached.

Thanks to its climate, Russia is also an important land for cryptocurrency mining, which is especially energy-intensive. Several Russian crypto assets have also been launched on local exchanges.

(with Reuters)