Russia seeks cryptocurrency to break sanctions woes
Russia faces a series of economic sanctions from Western countries after the conflict with Ukraine escalated. Since Russia’s invasion of Ukraine in February 2022, these sanctions have created serious challenges for cross-border payments in the country. As sanctions cause payment difficulties, Russia is accelerating its adoption of cryptocurrencies to address these challenges, Central Bank Governor Elvira Nabiullina stressed at a financial conference in St. Petersburg.
Nabiullina said the emergence of new financial technologies has created opportunities for payment solutions that did not exist before. “This is why we are becoming more tolerant of the use of cryptocurrencies in international payments, allowing the use of digital assets in these payments,” she said.
With major Russian financial institutions such as the Moscow Stock Exchange and its local alternative, the SWIFT global payments system, subject to sanctions, cross-border transactions in the country have become more difficult. Nonetheless, Russian businesses have begun using cryptocurrencies to settle transactions with international partners, including China.
Working with China to legalize stablecoin trading
Faced with economic pressure from Western sanctions, Russia’s central bank is considering legalizing stablecoins for use in cross-border transactions. In an interview with the Russian state newspaper Izvestia, Alexei Guznov, deputy governor of the Central Bank of Russia, said that the proposal is under discussion and that the ultimate goal is to standardize the entire process so that individuals can "transfer these assets to Russia, accumulate them and use them International payments.
Guznov noted that the initiative could move from a temporary experiment to a permanent regulatory structure, although a specific timeline for approval has not yet been revealed. Unlike traditional cryptocurrencies such as Bitcoin, stablecoins are typically asset-backed and have a central issuing authority, which addresses the Russian central bank’s previous concerns against legalizing digital assets.
Recently, some of Russia’s largest metal producers have begun using stablecoins to conduct transactions with China, as traditional payment methods face severe restrictions due to sanctions. These developments suggest that Russia is seeking new ways to maintain trade activity with China.
However, legalizing stablecoins remains problematic in terms of international sanctions compliance. In the case of Tether, the company recently partnered with Chainalysis to identify wallets that may be associated with illegal activity or sanctioned addresses to highlight its commitment to complying with international sanctions.
BRICS countries explore new payment system
Nabiullina revealed that Russia and BRICS countries such as Brazil, India, China and South Africa are discussing the establishment of a new payment system that does not involve Western institutions to solve the problem of cross-border payments. She noted that achieving this goal is very difficult and will take time to successfully create such a system.
Source: Bitcoin.com Elvira Nabiullina, Governor of the Central Bank of Russia
Andrei Kostin, the head of VTB, Russia's second-largest lender, agreed, adding that such discussions should be considered "state secrets" due to the sensitivity of the issue.
Under Western sanctions, Russia is struggling to find new fintech solutions to bypass sanctions restrictions and keep its economy running. The legalization of stablecoins and cooperation with BRICS countries are undoubtedly new ways for Russia to explore in this dilemma. As Russia continues to advance these initiatives, both the global cryptocurrency market and the international financial system will face new challenges and opportunities.