A Change of Course: Russia’s New Approach to Cryptocurrency
Abigail Darwish | 19 August 2024
Summary
Russia recently passed two laws effectively advancing the use of cryptocurrency to skirt sanctions.
The laws represent a shift in Moscow’s crypto policy, which has been considerably reshaped by the advent of the Russo-Ukraine War.
This shift has broader implications for the ongoing conflict, as well as the strengthening of ties between Russia and other non-Western, sanctioned countries.
In July 2024, Russia’s government passed two laws concerning the use of cryptocurrency, signalling a shift in the country’s stance on digital currency. The first law, which is to come into effect on 1st November, fully legalises crypto-mining by government-approved entities or individuals in Russia–a previously regulatory grey area–whilst the second law, which is to come into effect on 1st September, permits the Bank of Russia to use crypto in international payments.
Amidst increased sanctions on Russia, Moscow’s national strategy has had to adapt to a changing economic and political climate. Before Putin’s full-scale invasion of Ukraine, the Bank of Russia proposed a ban on the use of cryptocurrency and crypto-mining within the country over concerns about financial stability and monetary policy. Since the Russo-Ukraine War, mounting sanctions on Russia have hampered its ability to make international payments. This has been exacerbated by a new wave of restrictions placed on Russia since December 2023, with the U.S. authorising secondary sanctions targeting those financial institutions that have assisted Russia in bypassing economic embargoes. Since then, transactions between Russia and the international community, such as with China, the UAE, and Turkey, have been undermined, and the Moscow Exchange has halted trades in U.S. Dollars and Euros.
A common strategy?
Other sanctioned countries, such as Venezuela, Iran, and North Korea, have already been using cryptocurrencies to circumvent international sanctions. Distinguishing Russia’s case from this list, however, is the ongoing case that Russia is engaged in a war with Ukraine, meaning that Russia’s recent legalisation of crypto can alleviate the brunt of sanctions and also impact the conduct of the war. In 2023 alone, Russian military units in Ukraine received over USD 1.8 million in donations via cryptocurrency. Cryptocurrency, is therefore expected to be better incorporated into financing the war, especially since the Bank of Russia will soon be able to authorise companies to conduct cross-border settlements and exchange trading through digital assets.
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Forecast
Short-term
Crypto will very likely perform a greater role in funding the Russian war effort against Ukraine.
It is likely that sanctioned countries will continue to move towards cryptocurrency use as a means of bypassing sanctions. This will likely also cultivate bilateral transactions between sanctioned countries, which is currently underway between Russian and Iranian central banks to connect Moscow and Tehran’s digital currency systems.
Long-Term
It is likely that the second law in particular will be to the advantage of BRICS countries who, since 2019, have established an objective to develop a new currency for international trade settlement, in part to diminish the use of the US dollar for international trade. Crypto may therefore be considered a more viable route for this.
It is highly likely that there will be an increase in Russian-led cyberattacks. Cryptocurrencies have previously been used to compensate for a country’s lost revenue through cyberattacks. For instance, North Korea has effectively recovered some revenue through hacking crypto wallets and laundering those stolen funds through crypto platforms.