Author: Aiying
On July 30, 2024, the Russian State Duma passed a law in the second and third readings that allows the use of digital currencies in cross-border transactions and exchange transactions as part of the experimental legal system (EPR) from September 1, 2024. This includes Ethereum (ETH) and stablecoins (such as USDT), rather than just central bank digital currencies (CBDCs), which marks a major shift in Russia's attitude towards cryptocurrencies and provides an experimental platform for the feasibility and risk control of digital currencies in practical applications. Aiying will analyze the evolution of Russia's cryptocurrency policy in detail in light of the historical background and explore future development directions.
1. The Origin and Initial Attitude of Russia’s Cryptocurrency Policy
Before 2017, the Russian government and central bank were very cautious about cryptocurrencies. Cryptocurrencies were considered extremely risky, with concerns that they could be used for illegal activities such as money laundering and terrorist financing. The central bank has repeatedly warned the public not to invest in cryptocurrencies such as Bitcoin, pointing out that their prices fluctuate greatly and pose high financial risks.
II. Formation of the preliminary regulatory framework
In 2019, Russia began exploring how to effectively regulate cryptocurrencies. The Ministry of Finance and the Central Bank disagreed on the issue, with the Ministry of Finance advocating for looser regulation and the Central Bank preferring strict control or even banning private cryptocurrencies (The Moscow Times). In 2020, Russia passed the Law on Digital Financial Assets, which recognizes cryptocurrencies as property but prohibits their use to pay for goods and services. This move marks an important step in Russia's legal status of cryptocurrencies, but specific regulatory measures still need to be improved.
III. Further Improvements and Policy Conflicts in 2021
Following the passage of the Law on Digital Financial Assets, cryptocurrency exchanges and wallet service providers were required to register with Russian financial authorities and comply with strict anti-money laundering (AML) and counter-terrorism financing (CFT) standards. However, the central bank and the Ministry of Finance remain at odds over how to further regulate cryptocurrencies. The central bank proposed a blanket ban on private cryptocurrencies, while the Ministry of Finance advocated a more relaxed regulatory approach. In 2022, President Putin intervened, calling on the two parties to reach a compromise and emphasizing Russia's competitive advantage in cryptocurrency mining.
IV. Recent Policy Developments and Experimental Legal Systems
The bill published yesterday ensures the operation of the EPR mechanism in the field of digital innovation in financial markets. At the same time, the Central Bank of Russia is given the function of being the competent and regulatory authority in the field of EPR. In addition, the document also clarifies that the Central Bank needs to consult with the Federal Financial Supervision Service (Rosfinmonitor), the Federal Security Service (FSB) and the Ministry of Finance of Russia in certain cases to approve EPR programs. The Central Bank will monitor the activities of EPR promoters to detect risks that may cause damage to national defense and security, as well as risks of money laundering and terrorist financing. Once these risks are discovered, the Central Bank must notify the Federal Security Service and the Federal Financial Supervision within no more than 10 days.
Current regulations prohibit the use of digital currencies in the settlement of goods (work, services). The new law has made changes to allow the use of cryptocurrencies as a means of payment for foreign trade activities within the framework of the EPRR. The EPRR program must clarify the rights and obligations of participants, as well as the responsibilities of foreign exchange control agencies and agents.
During the second reading, the State Duma supported a set of amendments, including the permission to conduct cryptocurrency exchange trading within the framework of the EPPR. The EPPR proposal must stipulate the procedure for entering (exiting) cryptocurrency trading, clarify the requirements for organizers and the circumstances of such trading on the trading system.
Within the framework of the EPR, the Bank of Russia was given the possibility to create an electronic platform for operating digital currencies based on the National Payment System (NPS), formulate its operating rules, and set requirements for its operators.
Thus, unlike the initial version, the Russian Central Bank will be able to conduct three experiments from September 1 this year: using cryptocurrencies for foreign trade settlements, conducting cryptocurrency exchange transactions, and creating an electronic platform for operating digital currencies based on the national payment system.
5. The status of the Russian cryptocurrency market
According to the data currently collected by Aiying:
Number of cryptocurrency holders:
The number of cryptocurrency holders in Russia is estimated to be 3.02 million in 2024, or 3.6% of the total population. This suggests that despite the popularity of cryptocurrencies worldwide, their penetration in Russia is relatively low.
Exchange data:
Data from Exmo, one of Russia's largest cryptocurrency exchanges, shows that the platform's trading volume reached $3 billion in 2023, an increase of 25% from 2022. This reflects that the demand for cryptocurrency trading in the Russian market is continuing to grow.
Mining data:
In 2023, Russia became the world's second-largest cryptocurrency mining country, accounting for 13% of the global Bitcoin computing power, second only to the United States. Russia's mining industry benefits from the country's abundant energy resources and cold climate, which help reduce mining costs and improve efficiency.
tax income:
The Russian Ministry of Finance estimates that tax revenue from cryptocurrency trading and mining activities could reach 2.5 billion rubles (about $340 million) per year starting in 2023. This tax revenue provides Russia with a new source of finance, which is particularly important in the context of international sanctions.
In the current context of international sanctions, Russia's promotion of cryptocurrency policy is of great significance. Due to multiple rounds of economic sanctions imposed on Russia by the United States and its allies, Russia's position and operation in the international financial system have been seriously affected. These sanctions include restrictions on international transactions of Russian banks and freezing of assets, which greatly restricts Russia's financial operation space in the global market. In the future, Aiying will continue to pay attention to the development status of the cross-border payment market after the Russian sanctions, and its innovative payment solutions. Please pay attention to the account updates.
