According to blockchain analytics provider Chainalysis, the Central Bank of Russia (CBR) is leading efforts to develop financial infrastructure that would allow the country to use cryptocurrencies in international trade and circumvent Western sanctions.
Friday’s Chainalysis Policy and Regulations report highlighted a recent bill passed by the Russian parliament that legalizes cryptocurrency mining and allows cryptocurrencies to be used for international payments. The bill was signed into law by President Vladimir Putin on August 8, and a cryptocurrency payment pilot is set to begin this September.
“Recent legislative efforts around cryptocurrencies are part of a broader effort by Russia to develop alternative payment mechanisms to ease Western sanctions pressure and reduce its dependence on the U.S. dollar. This has been a long-term goal for Russia, especially amid rising geopolitical tensions,” Chainalysis said in its report.
According to Chainalysis, the Central Bank of Russia (CBR) will oversee the cross-border cryptocurrency trading pilot. The CBR is also testing a digital ruble, a central bank digital currency (CBDC) expected to be launched in 2025. The report also added that approved mining organizations will also be allowed to settle transactions using cryptocurrencies.
“CBR is leading the initiative to integrate cryptocurrencies into the Russian financial system for cross-border payments, and is building experimental infrastructure to enable authorized Russian companies and entities to use digital currencies for international trade,” said Valerie Kennedy, head of research at Chainalysis.
The report notes that centralized cryptocurrency exchanges based in Russia could be leveraged to process cross-border payments. Chainalysis highlights that some of Russia’s largest non-KYC exchanges, such as Tetchange, 100btc, Bitzlato, Suex, and Garantex, are headquartered within the Moscow International Business Center and could potentially be leveraged to facilitate sanctions-evading payments. “The new law could allow the Russian government to formally or informally leverage services like Garantex, given their deep liquidity on major blockchains,” the Chainalysis report states.
The report added that Exved is another exchange that could be used for crypto-based sanctions evasion. Exved has worked closely with InDeFi Bank, co-founded by Garantex founder Sergey Mendeleev and former KGB officer and media mogul Alexander Lebedev. Chainalysis noted that Exved facilitated imports and exports even before the new bill was signed into law in August.
The blockchain analytics firm noted that Russia’s initiative to build a new cryptocurrency ecosystem for cross-border payments would present significant complications for investigators. Nevertheless, The report added that the transparency inherent in blockchain technology could provide unprecedented insight into Russia’s sanctions evasion strategies..
Russia’s Attempt to Bypass Dollar-Based World Trade
According to Chainalysis, Russia has been exploring a number of ways to circumvent Western sanctions, including working with the BRICS community on blockchain-based initiatives and working with Iran to launch a gold-backed stablecoin.
Another important element of this bypass strategy is the Central Bank of Russia’s Financial Messaging System (SPFS), which is Russia’s alternative to the SWIFT financial messaging system, but its adoption remains limited.
Recent changes in Russia show a significant departure from the government’s previous stance. As recently as 2022, the Central Bank of Russia (CBR) called for a total ban on cryptocurrencies. However, despite the new law, the ban on using cryptocurrencies for domestic payments in Russia remains in effect.
Disclaimer: The Block is an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures is the largest investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information on the cryptocurrency industry. Below are the current financial disclosures.
© 2024 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be legal, tax, investment, financial or other advice.