Russia is set to start testing cross-border cryptocurrency payments next week as a strategy to bypass international sanctions. However, several experts believe this initiative may face significant challenges and might not yield the expected results. The new law, passed in July and quickly signed by President Vladimir Putin, allows cross-border payments with cryptocurrency but does not lift the existing ban on using cryptocurrencies for regular transactions within Russia.
Unclear Rules and Central Bank Oversight
The legislation does not clearly outline how these cross-border payments will be conducted. Instead, it gives Russia’s central bank the authority to oversee an “experimental” regime for these transactions. Experts suggest that this leaves a lot of uncertainty about how the law will function in practice. Despite this uncertainty, Russia is pressing forward as its economy struggles under a heavy burden of sanctions imposed by Western nations in response to its invasion of Ukraine in February 2022.
These sanctions, numbering over 16,500, have come from countries including the U.S., U.K., European Union, Australia, Canada, and Japan. The impact has been severe, with the European Union reporting that approximately half of Russia’s foreign currency reserves—worth around 300 billion euros—have been frozen. Additionally, several Russian banks have been disconnected from SWIFT, the global interbank messaging system, further isolating the country from the international financial system.
Valerie Kennedy, director of investigations at blockchain analytics firm Chainalysis, remarked that the new legislation is part of Russia’s ongoing efforts to find alternative methods to mitigate the effects of these sanctions. However, the lack of clarity in the law could make it challenging to implement effectively.
Experimental Regime and Future Prospects
Some details about the law have emerged ahead of its September 1 implementation. The legislation mentions that during the circulation of digital currencies in Russia, special regulations may be established under an experimental legal regime. However, the exact parameters of this regime are still under development. The central bank plans to consider proposals from various domestic stakeholders before finalizing the regulations.
Anti Danilevski, founder and CEO of Kick Ecosystem, a crypto platform, mentioned that his company has already submitted proposals to the central bank. He expressed optimism about the quick pace at which the central bank is moving, suggesting that it won’t be long before more concrete guidelines are issued.
According to reports, Russia plans to use the National Payment Card System for exchanging rubles and cryptocurrencies during the trials. This system is already regulated by the central bank and has the necessary infrastructure for interbank settlements. If the trials succeed, Russia may allow the Moscow Exchange and the St. Petersburg Currency Exchange to establish crypto trading platforms as early as next year.
However, the law remains flexible, allowing the central bank to change its approach to the trials at any time. This flexibility adds another layer of uncertainty, with many questions still unanswered about how the system will operate and which entities will be allowed to participate.
While the law does not explicitly state its purpose, recent comments from Russian leaders have indicated that the primary goal is to use cryptocurrencies as a tool to circumvent sanctions. President Putin has emphasized the need to establish a legal framework for crypto, recognizing its growing use in international transactions. Central Bank Governor Elvira Nabiullina also acknowledged the softened stance on cryptocurrencies due to their potential role in helping Russia navigate the challenges posed by sanctions.