When you are Russian and only have bank accounts based in Russia, how do you receive payments from abroad? This is the dilemma faced today by millions of Russians who previously traded with bank accounts located in foreign countries, who now apply Western sanctions, in retaliation for the invasion of Ukraine since 24 february. While the Putin government is looking for all the alternatives to mitigate the effects of the sanctions – such as the blocking of Swift transfer messaging for the most popular banks in the country, the latest solution found is unprecedented. For transactions with the international, the Kremlin plans to authorize payment in cryptocurrencies, these assets which are exchanged on the blockchain, without the control of a central authority.
“The idea of using digital currencies in transactions for international settlements is being actively discussed,” Ivan Chebeskov, head of the finance ministry’s financial policy department, was quoted by the Interfax news agency as saying on Friday. In other words, a Russian consumer with a crypto-asset wallet on an online platform or on a USB key (ledger) could use it to circumvent the ban with another crypto account holder.
Allowing cryptocurrency as a means of settlement for international trade would help thwart the impact of Western sanctions, which have seen the access of the Russia to traditional cross-border payment methods “limited”, he added.
The Ministry of Finance is discussing adding the latest proposal on international payments to an updated version of a bill, the newspaper reported on Friday. Vedomosticiting government officials.
Getting out of addiction
For Moscow, the challenge is twofold. First, it is to support the ruble, the national currency which can no longer rely on the frozen foreign currency reserves held by the Russian Central Bank. Indeed, in the event of too strong a depreciation of the rouble, prices – already subject to strong inflation following the cessation of imports of foreign products – would only increase for the Russians. Enough to weaken the support of the population for the regime and the policies of Vladimir Putin, in the face of an economy already plunged into a dizzying recession. The lowering of central bank rates has no other role than to support this war economy.
Also, in their daily lives, Russians have seen online banking and payment services shut down one by one. After Visa, Mastercard, American Express, other pure player solutions such as PayPal, Google Pay and Apple Pay followed, blocking millions of transactions that had previously been made. To remedy this, Moscow turned to Chinese solutions.
Russian arm wrestling
The other challenge of this interest in cryptocurrencies for the authoritarian regime is also to participate in reducing the dependence of international exchanges on the dollar.
In this sense, the central bank is already maneuvering to experiment with a digital rouble, i.e. a centralized digital currency (MNBC) to create a new monetary order within but also with its new partners, starting with the China already at the forefront of e-yuan.
But Russian officials obviously want to go further than the central bank’s plan (which opted for a crypto ban in order to favor its MNBC), and to authorize the cryptocurrency market more broadly, while regulating it.
While the United States is pressuring its allies to prevent the payment of hydrocarbons imported from Russia in dollars, a Russian parliamentarian had also put forward the idea of accepting payment in bitcoin (the most popular crypto in Russia, followed by Tether, Litecoin then Ethereum and Dogecoin, according to Brand Anaytics in 2021) against deliveries of gas and oil.
On this subject, discussions have been going on for months and, although the government expects cryptocurrencies to be legalized sooner or later as a means of payment, no consensus has yet been reached.
Thanks to its climate, Russia is also an important land for the mining of cryptocurrencies, which is particularly energy-intensive. Several Russian crypto-assets have also been launched on local exchanges.