Despite Russia pushing the idea of using cryptocurrencies for cross-border payments, it still remains unclear what digital asset exactly the government plans to adopt for such transactions.
Russian authorities are quite unlikely to approve the use of cryptocurrencies like Bitcoin (BTC) for cross-border transactions, according to local lawyers and fintech executives.
Bank of Russia needs to control cross-border transactions
It’s “highly questionable” that Russia would allow usage of Bitcoin or any other similar cryptocurrency for cross-border payments because such assets are “hard to control,” according to Elena Klyuchareva, the senior associate at the local law firm KKMP.
Klyuchareva emphasized that the draft amendments to the legislation on cross-border crypto payments are not available yet, while reports only state that the Bank of Russia and the Ministry of Finance have agreed upon a common approach to the issue.
The lawyer told Cointelegraph that the cryptocurrency used by Russia for cross-border payments will most likely be local, so Russian regulators can properly monitor and control such transactions. She also suggested that only major institutional players — like banks — will be able to comply with requirements for making cross-border payments.
USDT and USDC are questionable as the stablecoins are issued in the US
Russia should be choosing a cryptocurrency for cross-border settlement while eliminating all possible pressure from other countries, according to Eduard Davydov, the senior partner at Emet Law Firm. As such, cryptocurrencies issued in the United States, including major stablecoins like Tether (USDT) or USD Coin (USDC), will “not meet such requirements,” Davydov assumed.
As the world’s most decentralized cryptocurrency, Bitcoin might look more suitable in such a context, but BTC is also associated with a number of issues like high volatility, limited scalability as well as vulnerability to global sanctions. “Whole arrays of addresses may fall under the sanctions when interacting with which the coins will be considered ‘dirty’ and counterparties may choose not to make transactions with such addresses or coins,” Davydov noted.
Bitcoin looks suitable due to its decentralized nature, but volatility is too high
Sergey Mendeleev, CEO and co-founder of InDeFi Smart Bank, also believes that decentralized cryptocurrencies like Bitcoin would only make a good choice for Russia’s crypto cross-border payments if they were less volatile.
Mendeleev also said that it’s hard to imagine a situation where foreign businesses would accept payments in a Russian ruble-pegged cryptocurrency. “In any case, businesses would be able to convert any currency into Bitcoin, or into Tether in one click,” he added.
The CEO also expressed hope that Russian regulators would have enough courage to allow foreign economic activity with participation of “at least U.S. dollar stablecoins on major blockchains.” Mendeleev stressed that InDeFi Smart Bank announced in September 2022 the creation of a decentralized crypto ruble project exactly for the sake of simplifying this idea.
Iran is one of few countries with similar experience worldwide
Russia is among few countries in the world to authorize cross-border crypto payments while banning local crypto payments alongside local crypto exchanges. However, there are a few countries that can serve as an example of a government taking a similar approach to crypto.
A good example might be Iran, which is under U.S. sanctions, Davydov suggested, referring to Iran’s Industry, Mines and Trade Ministry approving the use of crypto for imports in late August. The Iranian authority said that the new measures aim to help Iran mitigate global trade sanctions that essentially cut the country out of the global banking system.
In August, Iran placed its first international import order using $10 million worth of cryptocurrency, a senior government trade official reported. The official did not specify what digital currency exactly was used for the transaction though.
In the meantime, Iran still doesn’t officially allow its residents to pay using cryptocurrencies like Bitcoin. Iran’s central bank first prohibited the use of crypto for payments inside the country in draft crypto regulations from 2019. Similarly to Russia, cryptocurrency investment also remains illegal in Iran.
“Domestic payments in cryptocurrency are still banned in Iran. The local government has repeatedly claimed that it implemented crypto for international transactions,” Davydov stated.
As previously reported, the Russian government became increasingly interested in adopting cross-border payments in crypto amid Western economic sanctions following Russia’s invasion of Ukraine. The Bank of Russia and the Ministry of Finance have been collaborating on policies and rules for allowing such payments, while the central bank stressed that domestic crypto payments and crypto exchanges would not be legalized.
According to Anatoly Aksakov, head of the finance committee in Russia’s lower house of parliament, Russia might start cross-border payments in crypto already in 2023. He reportedly suggested that businesses themselves will be able to choose the cryptocurrency for cross-border settlements, either it would be Ether (ETH) or Bitcoin, or another digital currency.