Just a few months ago, Kremlin bureaucrats were as cold to the idea of cryptocurrencies as winter in Siberia.
Then came the invasion of Ukraine and sanctions by a large swath of countries that crippled Russian access to the world banking system. All of a sudden, an anonymous, low-cost method of making payments across international borders and one that also threatened the dollar’s privileged position as the world’s reserve currency stopped seeming like such a bad idea.
Now Moscow is actively turning to crypto, planning a digital rouble early next year as it seeks to modernize its financial system and increase its clout in the global financial system. Meanwhile, the European Union has other ideas and last week tightened restrictions on Russia’s cryptocurrency presence.
“The topic of digital financial assets, the digital rouble and cryptocurrencies is currently intensifying in society, as Western countries are imposing sanctions and creating problems for bank transfers, including in international settlements”, Anatoly Aksakov, head of the Russian Duma’s financial committee, was quoted by Reuters as telling a parliamentary newspaper.
“If we launch this, then other countries will begin to actively use it going forward, and America’s control over the global financial system will effectively end,” Aksakov added.
Deputy Finance Minister Alexei Moiseev said earlier last month that the Russian central bank has agreed with plans to legalize crypto for cross-border payments.
“But now the U.S. is ratcheting up sanctions,” says Omid Malekan, an adjunct professor who lectures on blockchain and crypto at the Columbia Business School. “This creates an incentive for countries to try to find an alternative currency to transact it for things like cross-border trade, because then you are no longer at the mercy of U.S. economic sanctions.”
This change of heart comes after the country sought a complete ban on cryptocurrency operations including trading, issuance and mining in January. Then, in July, President Vladimir Putin signed a bill banning the use of cryptocurrency as a means of payment for domestic goods and services.
Seeking to frustrate Russian attempts to maintain a place in international finance, the European Union will not allow the country’s citizens to hold assets in EU cryptocurrency wallets. But that could be an empty threat.
“If it’s a non-custodial wallet like Metamask it’s a nonsensical statement, every user does it locally on their own device and can do it from anywhere. We can’t know where they are physically located,” says Malekan. “If it’s a custodial wallet then the holder of the asset is doing know-your-customer.”
Moscow is reportedly showing its newfound appreciation of cryptocurrencies in other ways. It is planning to provide electricity to power-hunger crypto mining farms in neighboring Kazakhstan, with the power monopoly Inter RAO dealing directly with companies in the former Soviet republic, Bitcoin.com cited Russian business-information portal RBC
Meanwhile, pro-Russian groups are using cryptocurrency to raise funds for war operations via the encrypted messaging app Telegram, Chris Janczewski of TRM Labs said on CNBC. He stated that $400,000 had been raised since Russia invaded Ukraine in February and that the amount was likely to rise.
