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  • J McGlynn and M Bacina

Russia warms up to crypto - agrees to treat crypto as currency

The government and bank of Russia are hard at work drafting a new law which will define crypto as an “analogue of currencies” , set to be launched as soon as 18 February. The move, announced last Tuesday, seems to have arisen from Russia's desire to avoid the risk of stifling innovation and risks to the country's financial system by keeping cryptocurrency unregulated.

According to a rough translation by Blockmedia, the draft document accompanying the announcement reads:

The establishment of rules for the circulation of cryptocurrencies and control measures will minimize the threat to the stability of the financial system and reduce the use of cryptocurrencies for illegal purposes since a complete ban on the segment of operations related to their circulation is impossible.

This is a refreshing position accepting that peer-to-peer cryptocurrencies are in practice unbannable, a position that Western regulators have not been so quick to admit. This reality is an important factor in considering regulation, as regulation which supports and encourages businesses to come within a regulatory perimeter is essential, if it is too onerous then businesses will move operations to ensure their competitive advantage remains strong.

Today in Russia, crypto-assets can only really be used as currency if the counterparty to a transaction is happy to accept payment directly, or where a digital currency exchange is involved with KYC/AML checks having been performed. More than that, crypto transactions in Russia of more than 600,000 rubles (roughly $8,000 USD) require declaration or are otherwise considered as a criminal act.

In an aim to minimise the amount of crypto transactions that could operate below the radar as a result of these hurdles, the accompanying document continues:

The complete absence of regulation of this industry, as well as the establishment of a ban, will lead to an increase in the share of the shadow economy, an increase in fraud cases and destabilization of the industry as a whole

Russia's attitude is certainly a reversal from the Bank of Russia's earlier but recent proposition to ban miners and several cryptocurrencies over concerns the industry was too speculative.

Perhaps Russia's change of opinion has been sparked by Russian Ministry of Finance's public opposition to the proposed ban or word that President Vladminir Putin supports moves to regulate the crypto mining sector? The reason for the change could also be part and parcel of increasing numbers of countries recognizing cryptocurrency's value and use cases.

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