As Western sanctions against Russian financial institutions continue to tighten, Moscow has taken significant steps to legalise crypto, which could potentially help it circumvent the sanctions.

The State Duma, the lower chamber of the Russian Parliament, has adopted a bill on the regulation of cryptocurrencies in the country. The adopted law indicates a much more lenient approach to crypto, compared with a previous draft, which stipulated a total ban on crypto in Russia.

However, while generally legalising crypto mining and foreign crypto payments, the Russian government is tightening its control over the crypto segment.

 

Crypto for foreign trade

The State Duma has adopted in the second and third readings a law which will allow foreign trade settlements and exchange trading in cryptocurrency as of September 1.

In accordance with the adopted law, the Central Bank of Russia (CBR) receives the authority to carry out settlements in cryptocurrency. Initially foreign payments in crypto would be conducted on an "experimental" basis, but the scope of the experiment could be expanded.

The CBR is yet to come up with a procedure for admitting crypto for trading, as well as to determine requirements for companies that would be able to settle foreign payments in crypto.

After September 1, the CBR will be able to create a platform for digital currency transactions on the basis of the national payment system.

Senior CBR officials, who previously were rather sceptical about crypto, have lately spoken in favour of using "unconventional" methods of international payments. Vladimir Chistyukhin, CBR's first deputy chairman, was recently quoted by the Russian business daily RBC as saying that if new foreign payments are not developed in the situation of sanctions, Russia's export-oriented economy may be "doomed."

"What used to seemed to us as unpopular – such as swaps, clearing systems or the use of crypto – all must be tested, all must be tried and as soon as possible," he was quoted as saying.

 

Crypto payments within BRICS?

Experts agreed that crypto could be a promising options for Russia's foreign trade.

"Since the introduction of large-scale economic sanctions against Russia, the prospects for this new type of economic transaction have increased," Yuri Brisov, a partner at the law firm Digital & Analogue Partners, was quoted as saying by the Russian business daily Kommersant. "Russia has been technically disconnected from SWIFT, so international transactions have become limited, and cryptocurrency, due to its universal scale and unrestricted nature, makes it possible to solve this problem."

According to Brisov, payments in crypto could be promising with countries, such as Hong Kong or the United Arab Emirates, which didn't impose sanctions on Russia and where crypto payments are legal.

"Therefore, the creation of a special regulatory regime in the space that does not impose sanctions, the BRICS countries, Hong Kong, the UAE, will allow Russian business to solve a large number of transactional problems in international relations," he concluded.

The BRICS group of countries, which includes Brazil, Russia, India, China and South Africa, could be the most promising area for mutual payments in crypto, according to CBR deputy chairman Alexei Guznov.

Meanwhile, in June 2024, there were reports that the crypto company Ripple could be a potential player in the development of BRICS Pay, a digital payments platform created by the BRICS countries.

 

Miners under tight scrutiny

The adopted law also legalised crypto mining in Russia. As stated in an explanatory memorandum, the measure will make it possible to declare income received and the payment of taxes. Only legal entities and individual entrepreneurs will be able to engage in mining after they have been included in a special register. Otherwise, they will be allowed to continue working, but will be prohibited from exceeding the established limits of energy consumption.

Miners will be obliged to provide their wallet addresses and information about transactions to government agencies, as well as to report on the cryptocurrency received to Russia's state financial watchdog Rosfinmonitoring. The same agency will maintain a list of addresses through which money laundering or terrorist financing is alleged to have been carried out.

Meanwhile, Russia's president Vladimir Putin recently blamed miners for electricity shortages, particularly in the regions Buryatia and Irkutsk. Earlier, Russia's Ministry of Energy proposed to increase tariffs for miners five to ten times to avoid shortages.

Under the bill, the government will be able to ban cryptocurrency mining in certain regions, which could seriously hit Russia's leading cities in mining.

"Miners are the most stable customers who consume electricity, they pay on time, they consume electricity in an even way, they have no surges," Vladimir Smerkis, former director of the Binance crypto exchange in the CIS, told Kommersant.

"If the government has the task of selling electricity to a stable client, of course, if there is no shortage in a particular region, I do not see any obstacles here," he went on to say. "In general, it is better not to restrict, but to regulate, to make an economically beneficial model where miners will be able to work, and the state will be able to receive various benefits for itself in the form of deductions."

Thanks to low electricity tariffs, Russia ranks second in the world in terms of crypto mining. Last year, the country mined $3.5bn worth of Bitcoin. By comparison, the United States, the market leader, mined almost $9.5bn worth of Bitcoin.

 

Digital ruble gains momentum

Simultaneously, the digital ruble, which is technically not crypto but is often mentioned in the crypto context, is soon expected to be launched in Russia, allowing the Russian government to tightly control people’s payments.

In late July, the CBR said it intends to move to the mass introduction of the digital ruble from July 2025.

"We are already discussing the terms of the experiment with ministries, agencies, with business," CBR head Elvira Nabiullina was quoted as saying by the Russian news agency Interfax. "And we expect that the first such payments will take place by the end of this year."

She added that "literally in a month" the CBR plans to increase the number of lenders participating in the pilot project on the digital ruble. "If everything continues to go according to our plan, we will successfully implement the pilots, we will be able to move from the pilot to the mass implementation of the digital ruble from July 2025," she concluded.

Meanwhile, support for the idea of the digital ruble recently also came from president Vladimir Putin.

"Now it is necessary to take the next step, namely, to move to a wider, full-scale introduction of the digital ruble into the economy, into economic activity and into the sphere of finance," he said at a recent government meeting on economic issues.

The digital ruble is a digital form of the Russian national currency, which the Bank of Russia plans to issue in addition to existing forms of money. One cash ruble is equal to one digital ruble.

CBR first deputy governor Olga Skorobogatova recently said that the regulator will expand the project to pilot the digital ruble from September 1. She added that the pilot project had been launched among 12 banks, with 19 more lenders in line to test the digital ruble.

The law on the digital ruble was adopted in the summer of 2023. In December of that year, the regulator said that the full-fledged implementation of the digital ruble will not begin until 2025.