Russia considers legalization of crypto payments: regulations, sanctions, and other economic implications of cryptocurrency 2024
- Tri Huynh Thien
- Aug 2, 2024
- 3 min read
By Trey Huynh August 2 2024
Russia continues to feel the weight of Western sanctions amid the ongoing conflict in Ukraine. Amid growing tension, the country is exploring the legalization of cryptocurrency for international payments.
Russia’s historically cautious stance on crypto and digital assets as a whole seems to be going through a great change as the world’s largest nation tries to mitigate the impact of economic sanctions. Various branches of the Russian government, including the central bank, have shown increasing support for integrating crypto into the financial system.
Ivan Chebesko, head of the Russian Finance Ministry, has been actively discussing the use of cryptocurrency for international settlements. Trade Minister Denis Manturov has also been involved in the conversation, hinting at crypto legalization happening in the near future.
One of the most difficult challenges Russia faces at the moment is international transactions. Key financial institutions in Russia, such as the Moscow Stock Exchange, the central bank, and other alternative systems to SWIFT, are having trouble circumventing sanctions.
Among other options, Russia is also working on creating a new global payment system known as the BRICS bridge (Brazil, Russia, India, China, South Africa.) This aims to reduce reliance on Western-dominated financial systems but has been slow to progress due to its complexity.
Can cryptocurrency be used to evade international sanctions?
Crypto is known for many of its traits, but perhaps the strongest selling point is anonymity. Decentralized transactions are equivalent to spending cash on the internet. Unless they hack into your wallet, no government can interfere with your payments. It’s also the biggest reason financial authorities have always been hesitant towards crypto.
However, there are several limiting factors to consider:
Market size and liquidity - according to CoinGecko, the total crypto market size is sitting at $2.4 trillion. Russia’s GDP in 2021 (prior to Ukraine invasion) was $1.8 trillion. While it’s still unclear how much cryptocurrency Russia plans to integrate into their economy, the country relies heavily on international exports. Simply put, the crypto market isn’t large enough to support the transaction needs at this scale.
Regulatory oversight - major cryptocurrency exchanges and financial institutions are subject to international regulations. The US Office of Foreign Assets Control (OFAC), for example, strictly prohibits US citizens from engaging with sanctioned entities regardless of payment methods. This seems to limit the ability of sanctioned nations, Russia in this case, to use cryptocurrency to bypass sanctions. Realistically, however, it does not prevent such transactions from happening.
Economic implications of mainstream cryptocurrency adoption
Crypto used to be a topic of controversies and memes. Well, it still is, but it’s also gained a lot of good public attention and appealed to large corporations, such as Amazon, Nike, and Tesla. Experts believe mainstream adoption would happen sooner or later, and that would bring major changes to the financial systems we currently know.
Financial inclusion - cryptocurrency can provide financial services to underdeveloped countries where traditional banking is limited. It can also give rise to small businesses and make startups more accessible to inspired individuals.
Reduced transaction costs - by eliminating intermediaries like banks, cross-border payments will be faster and cheaper. International trade will become more attractive and easier to achieve.
Economic growth - mainstream adoption of crypto could help stimulate the economy in many countries, especially in financial management and supply chain sectors. This would create more jobs and allow businesses to grow. It could also officialize many professions, such as blockchain manager or crypto analysts.
Security concerns - mainstream crypto means larger markets, leading to more business and other financial establishments. This will bring a painful challenge for policy makers, especially in smaller countries where their traditional financial systems may not be adequately managed to begin with. Risks of frauds, scams, and financial thefts would increase as the market grows.
In the case of Russia, mainstream crypto adoption would be a welcome change since the larger market size would provide more room for their financial needs. The only problem is, by the time this becomes a reality, the conflict in Ukraine might have already been solved.
As of now, there hasn’t been any public confirmation with this legalization, and it may potentially never happen. The only thing the world can do now is wait for further developments, and of course, in hopes of the conflict reaching resolution soon.
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