Shortly after the The Bank of Russia proposed the ban on cryptocurrency payments, mining infrastructure, and tightening of laws related to virtual money, Russia is reversing its stand on Cryptocurrencies. Shift in Russian Government policy stand on Cryptocurrencies is difficult to comprehend.
Fear of economic sanctions are looming on Russia. If Russia invades Ukraine, there are bigger possibility that there will be tougher economic sanctions. UK, Europe and US are in the process of working for Economic sanction for increasing the cost of invasion for Russia.
However, one of the biggest threats can be the situation where Kremlin is plugged out or cut from the Cross Border Payment System managed by Swift. Russia is working on its own set of CBDC. Recent policy shift in favour of recognising Cryptocurrency can be seen as a preparatory step by Russia to prepare its economy with a lesser reliance on Swift. BIS is working on numerous projects which may be the future of Cross Border Payments in a decentralised form. Russia policy shift may be futuristic and directed towards US dominated Financial Systems and order.
According to news reported by Russian newspaper Kommersant, Russia is likely to recognise cryptocurrency as a form of legal currency. Russian Government and the Bank of Russia have agreed for a future financial regime, permitting the circulation of cryptocurrencies in Russia. According to the news report by February 18, draft Regulations related to circulation of digital currencies will be prepared. Under the proposed regulations, cryptocurrencies will not be recognised as digital financial assets, but will be recognized as an analogue of currencies. Their circulation in the economy would be allowed only through the banking system and licensed intermediaries. People dealing with Crypto Currencies will be responsible to meet the threshold of 600 thousand Rubles along with necessary declaration. Transactions outside the permissible ecosystem will be a criminal offence and will attract fines and penalties. Regulations will not impact the Mining related aspects of the digital asset ecosystem
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According to the Russian Government Policy Note , in recent years, there has been a substantial increase in the amount of money invested in cryptocurrencies by Russian citizens. According to expert estimates, more than 12 million cryptocurrency wallets have been opened by Russian Federation individuals, with a total value of around 2 trillion rubles in the wallets. Furthermore, professional data indicates that the Russian Federation ranks third in the globe in terms of global mining capacities. Without statutory traceability systems for crypto-financial flows and information on recognised digital currency holders, law enforcement agencies will be unable to properly respond to offences and crimes committed with their use.
The absence of any regulation of this industry, as well as the imposition of a prohibition, will result in an increase in the shadow economy’s share, an increase in cases of fraud, and destabilisation of the industry as a whole, despite the fact that the number of accounts in crypto services shows a consistent growth dynamic from year to year. Since a complete ban on a segment of transactions related to their turnover is impossible, the establishment of rules for the circulation of cryptocurrencies and control measures will allow to minimise the threat to the financial system’s stability and reduce the use of cryptocurrencies for illegal purposes.
The proposed legislative revisions aim to create a lawful cryptocurrency market by establishing turnover standards and defining the circle of subjects – participants in cryptocurrency transactions – as well as laying down the requirements related to participants. Regulations will be focused on defining the manner of circulation of digital currencies in the economy and their integration into the financial system. Proposed regulations will protect the rights and interests of investors by divide them into skilled and unskilled. Regulations will also lay down guidelines for operation of cryptocurrency platforms. Participant entity will be required to have necessary liquidity and capital adequacy. Regulatory framework will act as an enabler for bringing the industry out of the shadows and for creating economic opportunity through legal business activities.
A closer look at the note hints the intention of Russian Government for not just Regulation but also creating a long-term ecosystem for decentralised currencies and integration of cryptocurrencies with the Sovereign Digital Currencies.
This also happens to be a period when the US Dollar’s reserve status is being questioned. the USD continues to perform the function as the world’s reserve currency through its strong impact on the international clearing mechanism body SWIFT, which administers the settlement conduit of international trade. Due to monetary debasement, expanding share of Chinese currency in international trade, internationalisation of the RMB, growing Chinese GDP, increasing number of global Chinese banks, and moves by other governments to build alternatives to SWIFT, the USD’s significance is weakening over time.
It will not be unwise to ponder that Russian Government may be anticipating economic sanctions and may be preparing the Russian Economy for decentralised cross border payments, not dependent on Swift.
Bureau Galactik Views