Russia legalizes Bitcoin, other cryptocurrencies for international transactions to skirt Western sanctions

08/04/2024 / By Kevin Hughes

Russian legislators have approved a bill allowing businesses to use Bitcoin and other cryptocurrencies to settle international transactions.

This development is part of Russia’s strategy to evade Western sanctions enforced after the beginning of Russia’s special military operation in Ukraine. The new law also updates existing regulations on cryptocurrency mining and the circulation of other digital assets while at the same time maintaining the ban on domestic cryptocurrency payments.

This law, which will come into effect in September, aims to address the significant delays in Russia’s international transactions, especially with major trading partners such as China, India and the United Arab Emirates. Central Bank of the Russian Federation Gov. Elvira Nabiullina strongly advocated for this law and stated that the country’s first nation-to-nation cryptocurrency transactions will occur before the year’s end.

“The risks of secondary sanctions have grown. They make payments for imports difficult, and that concerns a wide range of goods,” Nabiullina said. The central bank also emphasized that the delays in payments have contributed to the eight percent decline in Russian imports in the second quarter of 2024.

These delays persist despite different strategies being employed, such as using the native currencies of trading partners and developing an alternative payment system through the BRICS economic bloc. Many transactions still depend on American dollars and European Union euros and are processed through the Western-controlled SWIFT system, raising the threat of secondary sanctions and more delays.

Nabiullina stressed that these sanctions have affected import payments, expanding supply chains woes and raising expenses.

This decision by Russian legislators seeks to alleviate the economic difficulties caused by sanctions and guarantee softer international trade operations.

“We are taking a historic decision in the financial sphere,” Anatoly Aksakov, the head of the State Duma, Russia’s lower house of parliament, told lawmakers on Tuesday, July 30, after passing the legislation.

According to Mati Greenspan, CEO of crypto market research company Quantum Economics, Russia warming to crypto seemed right 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,” Greenspan added.

The world’s biggest digital currency is currently worth $66,000, as reported by CoinGecko data, up over 120 percent in the last 12 months.

Other sanctioned nations have often tried to avoid such financial restrictions through the use of cryptocurrencies. For instance, North Korea has on several occasions been charged with increasing millions of dollars in crypto to aid in financing different state programs and avoid foreign sanctions.

Russian central bank is previously against the use of crypto

Apart from passing the bill permitting Russian companies the capability to transact internationally by way of crypto, the Russian central bank will also be given authorization to move money overseas utilizing private digital currencies.

The central bank’s commitment to employing crypto for cross-border payments marks a turnaround from the regulator’s earlier position on the technology.

In January 2022, the Russian central bank suggested prohibiting the use of crypto for transactions, along with the mining of digital currencies, citing threats to financial sustainability, citizens’ welfare and monetary policy supremacy. (Related: Russia to ban individuals from using cryptocurrency for domestic transactions.)

Independently, Russia is also exploring the application of a digital version of the ruble.

Nabiullina said the central bank will depart from a pilot operation toward mass implementation of the digital ruble starting July 2025.

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

Greenspan stated that Russia’s move to welcome crypto “makes total sense from a global trade perspective.”

This will, Greenspan 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.”

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