Russia Regulates Cryptocurrency to Counter Sanctions and Facilitate Payments

In a strategic response to escalating international sanctions, Russia is swiftly regulating the use of cryptocurrencies. This decision comes as Russian businesses face increasing difficulties in foreign payments due to U.S. sanctions tied to the ongoing conflict in Ukraine.

According to a recent report, the State Duma, Russia’s lower house of parliament, is set to review a comprehensive cryptocurrency bill this Tuesday. Additionally, separate legislation aimed at regulating crypto mining is also under consideration. Anatoly Aksakov, head of the Duma’s financial market committee, expects these laws to pass quickly through the Federation Council. Once approved, President Vladimir Putin is anticipated to sign the bills into law, effective from September 1.

This legislative shift represents a notable change in Russia’s stance toward digital currencies. The shift is largely driven by increasing pressure on Russian businesses from U.S. threats of secondary sanctions on foreign banks. Despite the current prohibition on using digital currency for payments within Russia, President Putin recently urged the government to regulate this method both domestically and internationally. He highlighted that cryptocurrencies are increasingly used globally for international settlements.

This new approach contrasts sharply with the central bank’s position in January 2022, when it proposed a complete ban on cryptocurrencies. However, by the end of last year, the central bank softened its stance, supporting the experimental use of cryptocurrencies and mining for cross-border transactions. The new legislation has changed the regulation of cryptocurrencies, which will be regulated like foreign currencies. Aksakov said that companies related to crypto and mining have been advocating for the law so that they could work under a legal framework.

Authorities are expediting the legislation, hoping cryptocurrencies would facilitate smoother cross-border transfers. Analyst Ani Aslanyan noted that the U.S. is likely to monitor and attempt to block services and companies used by Russia, creating a dynamic race to stay ahead of sanctions.

Aslanyan also pointed out that only large exporters are likely to meet the new regulatory conditions, making crypto payments an exclusive domain for big businesses. Transactions would be restricted to entities that have mined their own crypto, a capability currently limited to major companies in Russia.

The Bank of Russia would serve as the primary regulator for cryptocurrency issues. With oversight roles assigned to the Federal Financial Monitoring Service, the Federal Tax Service, the Federal Security Service, and the Federal Property Management Agency, Aksakov concluded that these regulations allow businesses to proceed confidently.