While Russia is pushing the idea of using cryptocurrencies for cross-border payments, it remains unclear exactly what digital assets the government plans to use for such transactions.
Russian authorities are unlikely to approve the use of cryptocurrencies such as Bitcoin (BTC) for cross-border transactions, according to local lawyers and fintech leaders.
The Bank of Russia should control cross-border transactions
Russia allowing bitcoin or another similar cryptocurrency to be used for cross-border payments is “extremely questionable” because such assets are “difficult to control,” according to Elena Klyochareva, chief lawyer at local law firm KKMP.
Klyuchareva stressed that there is no draft amendment to the legislation on cross-border cryptocurrency payments yet, and only reports indicate that the Bank of Russia and the Ministry of Finance have agreed on a common approach to the issue.
The lawyer told Cointelegraph that the cryptocurrency that Russia uses for cross-border payments is likely to be domestic so that Russian regulators can properly monitor and control these transactions. It also indicated that only large institutional players such as banks would be able to comply with cross-border payment requirements.
USDT and USDC are questionable as stablecoins are issued in the US.
Edward Davydov, Senior Partner at Emet Law Firm, believes that Russia should choose a cryptocurrency for cross-border settlements and at the same time exclude all possible pressures from other countries. Thus, cryptocurrencies issued in the United States, including major stablecoins such as Tether (USDT) or USD Coin (USDC), “will not meet these requirements,” Davydov suggested.
Being the world’s most decentralized cryptocurrency, Bitcoin may be more appropriate in this context, but Bitcoin also comes with a number of issues such as high volatility, limited scalability, and vulnerability to global sanctions. “Entire ranges of addresses may be subject to penalties, when dealing with coins considered ‘dirty,’ and the other party may refuse to deal with these addresses or coins,” Davidoff said.
Bitcoin looks decent due to its decentralized nature, but volatility is very high.
Sergei Mendeleev, CEO and co-founder of InDeFi Smart Bank, believes that decentralized cryptocurrencies like Bitcoin would only be a good option for cross-border crypto payments in Russia if they were less volatile.
Mendeleev also said that it is difficult to imagine a situation in which foreign companies would accept payments in cryptocurrency linked to the Russian ruble. “In any case, companies will be able to convert any currency into Bitcoin or Tether with a single click,” he added.
The CEO also expressed his hope that Russian regulators will have the courage to allow foreign economic activity that includes “at least dollar-stable currencies in the major block chains.” Mendeleev stressed that in September 2022 InDeFi Smart Bank announced the creation of a decentralized crypto-ruble project specifically to implement this idea.
Iran is one of the few countries with a similar experience in the world.
Russia is one of the few countries in the world that allows cross-border crypto payments, but bans local crypto payments along with local crypto exchanges. However, there are many countries that can serve as an example of the government taking a similar approach to cryptocurrency.
Davydov suggested that Iran, which is under US sanctions, is a good example, citing the Iranian Ministry of Industry, Mines and Trade, which approved the use of cryptocurrencies for imports at the end of August. The Iranian government has said the new measures are aimed at helping Iran ease global trade sanctions that essentially exclude the country from the global banking system.
In August, a senior government trade official said Iran submitted its first international import order using $10 million worth of cryptocurrency. The official did not specify the exact digital currency used in the transaction.
Meanwhile, Iran still does not officially allow its citizens to pay with cryptocurrencies such as Bitcoin. The Central Bank of Iran banned the use of cryptocurrencies for payments in the country for the first time in the 2019 draft cryptocurrency law. As with Russia, investing in digital currencies remains illegal in Iran.
Domestic payments in cryptocurrency are still prohibited in Iran. The local government has repeatedly stated that it has introduced a cryptocurrency for international transactions.”