Effects of Russia’s Bill on Digital Currency
Russia has been in the news ever since the outbreak of the Russia-Ukraine war. Many developed countries have heavily sanctioned Russia as a way to force a stop to the current war. Due to this, Russia’s economy has been struggling. Many international companies are also shutting down their Russian branches.
In other situations, consumers are failing to buy goods from Russian manufacturers as a show of support to Ukraine. These strict economic sanctions are not only affecting the Russian state but also the elites and commoners.
Consequently, many Russians have turned to crypto as a way out of economic distress. In addition, the Russian government is also exploring the possibility of using crypto to reduce the impact of economic sanctions. This is the primary reason for the introduction of the Russian bill on digital currency.
However, before we get into the bill itself, we will explore the events that led up to the bill.
Events Leading Up to the Bill on Digital Currency
Russia invaded Ukraine on the 24th of February 2022. A wave of sanctions has followed since then. For example, the UK and the United States (along with other European countries) have committed to removing Russia from the SWIFT system. The Society for Worldwide Interbank Financial Telecommunication enables communication across the financial systems of many European countries. Other countries like Switzerland and France have frozen the assets of specific Russians.
Russia took a stance against crypto before the war. However, to escape these strict sanctions, it has turned to cryptocurrency. The Russian Central Bank first introduced the bill on digital currency in February. During this time, there were some disagreements. the Russian Central Bank still strongly believed that Russia should ban cryptocurrencies. The Ministry of Finance disagreed. However, by April, both institutions agreed on the regulation of crypto. Hence, lawmakers amended the bill.
Key Provisions in the Bill
• Regulation of Crypto Mining: The bill portrays crypto mining as a licensed activity. It has provisions stating how crypto miners are expected to operate. It further regulates how the licensing process will be carried out. This is coming after the Russian Central Bank proposed a ban on crypto in January 2022.
• Licensing of Crypto Exchanges: The bill recognizes crypto as an investment asset. It also states that crypto will not be regarded as a legal tender. Therefore, it will be nearly impossible to use them as payment for goods. Also, the bill provides that crypto exchanges that seek to conduct operations must obtain a license. These exchanges will also be subjected to Know Your Customer (KYC) regulations.
Possible Effects of the Regulation
One of the effects of this regulation is that it could increase the rate of crypto adoption in Russia. Russia currently has over 17 million crypto owners. The number is growing fast. This bill will provide legal certainty for many potential Russian crypto investors if this bill is passed.
Also, the bill could help Russia in evading many of the economic sanctions that have been issued against it. Since crypto transactions are mostly anonymous, it will be difficult for the international financial system to have an impact on the country’s economy.
As the conflicts continue, the need to adopt a decentralized financial system will become more important for both Russia and Ukraine. The international crypto community has continued to watch closely as the events unfold.