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Faced with sanctions, Russia chooses to get out of trouble by legalizing stablecoins
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In the context of the ongoing conflict in Ukraine and increasing sanctions on Russia, the Central Bank of Russia (Bank of Russia) is seeking to legalize the use of stablecoins for cross-border payments.
This move aims to mitigate the effects of sanctions and exclusion from the international funds clearing system (SWIFT), according to a new report by the Russian state publication, "Izvestia."
The report does not specify which type of stablecoins the Russian government is considering.
Stablecoins as a Solution to Sanctions
The Russian government is contemplating the formal legalization of stablecoins for international transactions to simplify cross-border payments for Russian companies in response to ongoing sanctions.
The Central Bank of Russia (CBR) is actively discussing proposals to allow the use of these crypto assets, which are pegged to stable currencies or assets like the US dollar or gold, making them less volatile than other cryptocurrencies.
CBR Deputy Chairman Alexey Guznov confirmed this initiative, emphasizing the primary focus on regulating the entire transaction chain, from transferring these assets to Russia to accumulating and using them for cross-border payments.
Guznov stated that this could be established as a permanent regulation rather than a temporary experiment. While stablecoins share similarities with digital financial assets (DFAs) and cryptocurrencies, their unique characteristics and widespread adoption necessitate fine-tuning the regulatory framework.
Promising International Settlement Tool
According to the report, stablecoins are seen as a promising international settlement tool, particularly for transactions with BRICS countries (Brazil, Russia, India, China, and South Africa).
Experts believe these assets can provide substantial liquidity and long-term resources to the market. The Russian Union of Industrialists and Entrepreneurs (RSPP) views stablecoins as an essential tool to strengthen cross-border transactions in the face of Western sanctions.
In March 2024, Russian President Vladimir Putin signed a law allowing the use of DFAs for international payments.
However, due to concerns about secondary sanctions from foreign companies, this process has not been fully implemented. Additionally, Russian DFAs are currently incompatible with the global crypto market, limiting their use for international payments due to issues of convertibility and liquidity.
Financial Transactions Between Russian and Chinese Commodity Companies Using USDT
Since February 2022, trade between China and Russia has significantly increased, reaching a record $240 billion in 2023. However, due to sanctions and compliance measures, Russian businesses face severe payment difficulties.
This affects both sanctioned and non-targeted companies. Commodity companies have found stablecoins to be a practical solution for cross-border transactions, overcoming issues related to receiving payments and procuring equipment.
To address these complexities, both countries are increasingly using USDT. This approach reduces the risk of overseas bank accounts being frozen, a recurring problem despite opening multiple accounts in different locations.
This practice is not new; for example, Venezuela often uses Tether for oil transactions, acknowledging the growing acceptance of stablecoins in global trade.
Legalization of Stablecoins to Aid Russia
The latest round of EU sanctions in June prohibits European organizations from connecting to Russia's SWIFT alternative, the Financial Message Transfer System (SPFS).
Combined with Russia's disconnection from SWIFT in 2022, this underscores the importance of developing alternative payment mechanisms. If stablecoin payments are legalized, they could be widely used by Russian businesses, including state-owned companies.
Stablecoins could bypass traditional systems like SWIFT, providing a potential solution to these challenges and making the process of conducting such transactions more straightforward and compliant with tax requirements.
Russian legislators are considering laws to establish a legal framework for the use of stablecoins in international transactions, marking a formal recognition of cryptocurrencies' utility in circumventing traditional financial obstacles.
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