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Russian Central Bank Encourages Businesses to Use Cryptocurrencies
Russia’s financial regulator has taken an extraordinary step, demonstrating how recent Western sanctions are hurting Russia’s foreign trade.
Reuters reported that the Central Bank of the Russian Federation (otherwise known as the Central Bank of Russia) has encouraged the use of cryptocurrencies to counter sanctions that impact financial transactions with Russian entities.
Russia’s central bank has advised companies to use “multiple-choice solutions,” including cryptocurrencies and other digital assets, to facilitate payments with foreign partners and counter Western sanctions imposed over the war in Ukraine, Reuters reported.
Sanctions against Russia
This is a notable shift, as in recent years the Russian Central Bank had supported the ban on cryptocurrencies in the interests of financial stability, while the Ministry of Finance had worked to regulate them.
But Russia’s economy is struggling after the West imposed a wide range of sanctions on the nation following its illegal invasion of Ukraine on February 24, 2022.
This is what Russia saw cut from Western technologyTHE exit of numerous western activitiesand the arrest Russian Energy imports, after Moscow’s actions in Ukraine turned Russia into a pariah nation for many countries around the world.
Image credit алесь-усцінаў / Pexels
In April 2022, for example, the European Union extended financial sanctions on Russia to include crypto wallets, in an effort to address concerns that cryptocurrencies could be used to evade existing sanctions.
However, Russia continues to trade with the BRICS countries, especially China, India, the United Arab Emirates, Turkey and others.
Western sanctions have also barred some Russian banks from the SWIFT messaging system for global payments, and more recently sanctions have targeted major Russian financial institutions, including the Moscow Stock Exchange and Russia’s national alternative to SWIFT.
Indeed, recent Western sanctions have focused on making it even more difficult for Russian entities to circumvent existing restrictions and conduct financial transactions.
Payment challenges
This has caused serious setbacks in recent weeks for Russia’s booming trade with China, India, the United Arab Emirates, Turkey and other countries, Reuters noted.
Elvira Nabiullina, governor of the central bank, reportedly admitted that payment problems are one of the main challenges for the Russian economy.
“New financial technology creates opportunities for schemes that did not exist before. That is why we have softened our position on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments,” Nabiullina said at a financial conference in St. Petersburg.
“There are various alternatives being discussed. Companies have become very flexible, very enterprising. They find ways to solve this problem and often they don’t even share them with us,” he was quoted as saying.
Nabiullina said that Russia’s trading partners in various countries are under “enormous pressure,” but also said that a new global payment system that does not involve Western institutions will emerge gradually, as many countries feel vulnerable using only one international payment system without alternatives.
BRICS Payment System?
Nabiullina, quoted by Reuters, said that Russia and other BRICS countries are discussing the BRICS Bridge payments system, which would be designed to connect the financial systems of member countries.
But he added that discussions were difficult and that it would take time to create such a system.
Andrei Kostin, head of Russia’s second-largest lender VTB, whose Shanghai branch was recently sanctioned, and who sat next to Nabiullina, was quoted as saying that any information about mechanisms for facilitating international payments should be considered a “state secret” by law because of its sensitivity.
“I see very well that right now somewhere in the US embassy, a second secretary is sitting and writing our every public statement. Maybe he is even sitting here. Whatever step we take, we can see that the reaction [from Western countries] “It’s very fast,” he reportedly said.
In March 2022 it emerged that Financial regulators from G20 countries monitored the use of cryptocurrenciesand fears that digital assets could be used to circumvent Western sanctions against Russia.