Russia legalizes use of cryptocurrencies for international trade

A law was passed in Russia today that allows companies to use cryptocurrencies for international trade. The use of digital assets should make it easier for Russian companies to circumvent the sanctions imposed by the West as part of the war in Ukraine.

The benefits of Bitcoin and co. for cross-border trade or for circumventing capital controls have been recognized for some time by institutions such as the International Monetary Fund. Putin-led Russia, which is less known for its liberal policies, also seems to be increasingly recognizing this.

According to Bloomberg, Putin himself told officials that cryptocurrencies are "increasingly used in the world as a means of payment in international transactions". The Russian president urged the government "not to miss the moment" to regulate the method for foreign transactions, Bloomberg reports.

Russia in particular could benefit from the use of Bitcoin and Co. Western sanctions have led to considerable delays in payment transactions with trading partners such as China and India. Banks in these countries have become more cautious due to pressure from Western authorities, explains the news agency Reuters.

According to the Russian central bank, the economy is increasingly suffering from the problems with international payment processing. As a result, Russian imports are expected to have slumped by eight percent in the second quarter of 2024.

The law intended to counteract this is expected to come into force in September. According to Elvira Nabiullina, Governor of the Russian Central Bank, the first transactions with cryptocurrencies will take place this year. Anatoly Aksakov, Chairman of the Financial Markets Committee of the Russian State Duma, told lawmakers: "We are making a historic decision in the financial sector".

However, payments with cryptocurrencies are still prohibited within Russia. The new law, through which the Russian central bank is to create an "experimental" infrastructure for payments, does nothing to change this. The law is part of a package that also includes regulations for the mining of cryptocurrencies, among other things. Further details are not yet known.

It was only in January 2022, just a few weeks before the start of the war in Ukraine, that the central bank proposed a general ban on the use of cryptocurrencies. The reasoning behind this was that they pose major risks to financial stability and economic security.

At the end of last year, the bank softened its position and supported the experimental use of cryptocurrencies in cross-border transactions. Nevertheless, it called on the country's financial institutions not to offer any services in connection with Bitcoin and Co.

Despite Russia's efforts to switch to the currencies of its trading partners or to develop an alternative payment system within the BRICS nations, many payments are still made in US dollars and euros and are processed via the international, Western-controlled SWIFT system.

In general, the US dollar is still the preferred choice for cross-border payments around the globe. Although the "greenback" is also steadily losing value, most countries still seem to have the greatest confidence in the stability of the world's reserve currency - however, the increasing sanctions seem to be slowly leading to a global rethink.

In an academic paper, Matthew Ferranti, a fifth-year doctoral student at Harvard's Faculty of Economics, came to the conclusion at the end of 2022 that it can make sense for central banks to hold Bitcoin reserves under normal circumstances. However, they should do so in particular if they are affected by sanction risks, according to the paper.

In view of the many difficulties, it makes sense for Russia to switch to existing alternative payment systems that are not subject to the control of others. A separate BRICS trading currency has not yet been created, but Bitcoin has established itself as a reliable transaction medium.

As the high volatility of Bitcoin still makes it difficult to use for transactions, the countries affected by sanctions still seem to prefer the US dollar stablecoin Tether (USDT). Sun Tianshu, founder of the payment processing platform Qifa, told Reuters a few days ago that USDT was being used for payment processing between China and Russia.

The problem with US dollar stablecoins: When Venezuela signaled a few weeks ago that it would rely on USDT as a means of payment for oil exports due to US sanctions, the company behind the stablecoin, Tether, spoke out and declared that sanction addresses would be frozen immediately - Blocktrainer.de reported.

Stablecoins in general can never be trustless, as it is in the nature of things that a central entity guarantees the convertibility of the crypto unit into the respective fiat currency. Pressure can be exerted on this party - for example by the USA - which also results in a considerable risk for users.

Only Bitcoin is a truly censorship-resistant money that has proven to be stable and reliable for more than 15 years. Whether you like it or not, sooner or later nations such as Russia or Venezuela will realize that they can only carry out 100% secure transactions using this asset.