Although Russia has pushed the idea of using cryptocurrencies for cross-border payments, the exact digital asset that the government plans to adopt for such transactions remains unclear.
Russian authorities are unlikely to approve the use of cryptocurrencies such as Bitcoin (BTC) in cross-border transactions, according to local lawyers and fintech executives.
The Bank of Russia needs to control cross-border transactions
According to Elena Klyochareva, a senior associate at the local law firm KKMP, allowing Russia to generate Bitcoin or any other similar cryptocurrency for cross-border payments is “extremely questionable” because such assets are “difficult to control.”
Klyuchareva emphasized that the draft amendments to the legislation on cross-border cryptocurrency payments are not yet available, while reports only indicate that the Bank of Russia and the Ministry of Finance have agreed on a common approach to this issue.
The lawyer told Cointelegraph that the cryptocurrency that Russia uses for cross-border payments will likely be domestic, so Russian regulators can properly monitor and control these transactions. It also suggested that only major institutional players – such as banks – would be able to comply with the requirement to make cross-border payments.
USDT and USDC questionable as US stablecoins are issued
According to Edward Davydov, Senior Partner at Emet Law Firm, Russia should opt for a cryptocurrency for cross-border settlement while eliminating all potential pressure from other countries. As such, cryptocurrencies issued in the US, including major stablecoins such as Tether (USDT) or USD Coin (USDC), “will not meet these requirements,” Davidoff hypothesized.
Being the world’s most decentralized cryptocurrency, Bitcoin may seem more appropriate in such a context, but BTC is also associated with a number of issues such as high volatility and limited scalability as well as exposure to global sanctions. “Full address matrices may be subject to penalties when dealing with coins that will be considered ‘dirty’ and counterparties may choose not to transact with these addresses or coins,” Davidoff noted.
Bitcoin looks decent due to its decentralized nature, but volatility is very high
Sergei Mendeleev, CEO and co-founder of InDeFi Smart Bank, believes that decentralized cryptocurrencies like Bitcoin would only be a good option for cross-border crypto payments in Russia if they were less volatile.
Mendeleev also said that it was difficult to imagine a situation in which foreign companies would accept payments in a Russian cryptocurrency pegged to the ruble. “In any case, companies will be able to convert any currency to Bitcoin, or to Tether with a single click,” he added.
The CEO also expressed his hope that Russian regulators will have enough courage to allow foreign economic activity to share “at least US dollar stablecoins on major blockchains.” Mendeleev stressed that in September 2022 InDeFi Smart Bank announced the creation of a decentralized crypto-ruble project in order to completely simplify this idea.
Iran is one of the few countries that have similar experience around the world
Russia is among the few countries in the world that allow cross-border crypto payments while banning local crypto payments along with local crypto exchanges. However, there are a few countries that can serve as an example of a government taking a similar approach to cryptocurrencies.
Davidoff suggested that Iran, which is under US sanctions, might be a good example of this, referring to the approval of Iran’s Ministry of Industry, Mines and Trade to use cryptocurrencies for imports in late August. The Iranian authority said the new measures are aimed at helping Iran ease global trade sanctions that have essentially isolated the country from the global banking system.
A senior government trade official reported that Iran submitted its first international import order in August using a $10 million digital currency. The official did not specify the exact digital currency used in the transaction.
Meanwhile, Iran still does not officially allow its residents to pay using cryptocurrencies such as Bitcoin. The Central Bank of Iran first banned the use of digital currencies for payments within the country in its draft crypto regulations as of 2019. As with Russia, investing in digital currencies remains illegal in Iran.
Domestic payments in cryptocurrency are still prohibited in Iran. The local government has repeatedly claimed that it has implemented cryptography for international transactions.”
Related: Russia aims to use CBDC for international settlements with China: Report
As previously reported, the Russian government has become increasingly interested in adopting cross-border payments in cryptocurrencies amid Western economic sanctions in the wake of the Russian invasion of Ukraine. The Bank of Russia and the Ministry of Finance are cooperating on policies and rules to allow such payments, while the Central Bank confirmed
