Russia Passes New Bill Allowing Cryptocurrency for Cross-Border
On July 30, 2024, the Russian State Duma passed a law in its second and third readings that allows the use of digital currencies in cross-border and exchange transactions starting from September 1, 2024, as part of the experimental legal regime (ЭПР). This includes cryptocurrencies such as Ethereum (ETH) and stablecoins like USDT, not limited to central bank digital currencies (CBDCs).
This marks a significant shift in Russia’s attitude towards cryptocurrencies and provides an experimental platform for testing the feasibility and risk control of digital currencies in practical applications. Coindarwin will analyze the evolution of Russia’s cryptocurrency policy and explore future directions.
1. Origins and Early Attitude Towards Cryptocurrency in Russia
Before 2017, the Russian government and central bank were very cautious about cryptocurrencies, considering them highly risky due to concerns about their use in illegal activities like money laundering and terrorism financing.
The central bank repeatedly warned the public against investing in cryptocurrencies like Bitcoin, citing high price volatility and financial risks.
2. Formation of the Initial Regulatory Framework
In 2019, Russia began exploring effective cryptocurrency regulation. The Ministry of Finance and the central bank had differing views: the Ministry of Finance favored looser regulation, while the central bank leaned towards strict control or even banning private cryptocurrencies (The Moscow Times).
In 2020, Russia passed the Digital Financial Assets Law, recognizing cryptocurrencies as property but prohibiting their use for payments. This was a significant step in establishing the legal status of cryptocurrencies in Russia, though regulatory measures still needed refinement.
3. Further Improvements and Policy Conflicts in 2021
After the Digital Financial Assets Law was passed, 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 continued to disagree on further regulation. The central bank proposed a total ban on private cryptocurrencies, while the Ministry of Finance advocated for more relaxed regulation.
In 2022, President Putin intervened, urging both sides to reach a compromise and emphasizing Russia’s competitive advantage in cryptocurrency mining.
4. Recent Policy Developments and Experimental Legal Regime
The recently passed bill ensures the operation of the ЭПР mechanism in the field of digital financial market innovations. The Russian central bank is designated as the authority and regulatory body for the ЭПР field.
The bill also specifies situations where the central bank must consult with the Federal Financial Monitoring Service (Росфинмониторинг), the Federal Security Service (ФСБ), and the Ministry of Finance for approving ЭПР programs.
The central bank will monitor the activities of ЭПР initiators to identify risks that could harm national defense and security, as well as risks related to money laundering and terrorism financing.
If such risks are detected, the central bank must notify the Federal Security Service and the Federal Financial Monitoring Service within 10 days.
Current regulations prohibit the use of digital currencies for settling payments for goods and services. The new law modifies this, allowing cryptocurrencies to be used as a payment method for foreign trade activities within the ЭПР framework.
The ЭПР programs must outline the rights and obligations of participants, and the duties of foreign exchange control authorities and agents.
In the second reading, the State Duma supported a series of amendments, including allowing cryptocurrency exchange transactions within the ЭПР framework. The programs must specify procedures for entering and exiting cryptocurrency transactions, the requirements for organizers, and the conditions under which trading systems conduct such transactions.
Within the ЭПР framework, the Russian central bank is authorized to create an electronic platform for digital currency operations based on the National Payment System (НПС), set its operating rules, and establish requirements for its operators.
Thus, unlike the initial version, the Russian central bank will be able to conduct three experiments starting September 1: using cryptocurrencies for foreign trade settlements, conducting cryptocurrency exchange transactions, and creating an electronic platform for digital currency operations based on the National Payment System.
5. Cryptocurrency Market Status in Russia
5.1 Number of Cryptocurrency Holders:
In 2024, the number of cryptocurrency holders in Russia is estimated to be 3.02 million, accounting for 3.6% of the total population. This indicates that while cryptocurrency is gaining global popularity, its penetration rate in Russia remains relatively low.
5.2 Exchange Data:
Data from Exmo, one of Russia’s largest cryptocurrency exchanges, shows that the platform’s trading volume reached $3 billion in 2023, a 25% increase from 2022. This reflects the growing demand for cryptocurrency trading in the Russian market.
5.3 Mining Data:
In 2023, Russia became the world’s second-largest cryptocurrency mining country, accounting for 13% of the global Bitcoin hash rate, 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.
5.4 Tax Revenue:
The Russian Ministry of Finance estimates that starting from 2023, tax revenue from cryptocurrency trading and mining activities could reach 2.5 billion rubles (approximately $340 million) annually.
This new source of revenue is particularly important for Russia in the context of international sanctions.
Conclusion
In the current context of international sanctions, Russia’s push for cryptocurrency policies is significant. Due to multiple rounds of economic sanctions by the United States and its allies, Russia’s position and operations in the international financial system have been severely affected.
These sanctions include restrictions on international transactions of Russian banks, asset freezes, and more, severely limiting Russia’s financial operations in the global market.