New Legislation on Cryptocurrency Payments

Russian lawmakers passed a new law on Tuesday permitting the use of cryptocurrencies for international payments, as the country continues to face financial pressure from Western sanctions. The State Duma, the lower house of the Russian Parliament, gave the initial approval to the new legislation, allowing businesses to use cryptocurrencies for cross-border trade, according to local media reports.

"We are making a historic decision in the financial sphere," said Anatoly Aksakov, the head of the Duma, according to Reuters.

Mati Greenspan, CEO of crypto market research firm Quantum Economics, noted that Russia's openness to crypto made sense because Bitcoin transactions "cannot be censored or blocked by any government or bank."

"Previously, Russia would not want to allow that kind of transactional freedom to its citizens, but now we are at a point where Bitcoin is used so frequently in everyday commerce that the opportunity cost of not allowing it is simply too great," he added.

Bitcoin prices have more than doubled over the past year amid optimism over the approval of the first U.S. spot Bitcoin and Ether ETFs, as well as the so-called "halving" event, which reduces the supply of newly issued tokens. The world's largest digital currency is currently valued at $66,000, according to CoinGecko data, up over 120% in the last 12 months.

Pressures from Sanctions

Growing tensions between Russia and the U.S. and its allies have led to numerous sanctions against individuals and entities in Russia in response to its assault on Ukraine. The U.S., European Union, and Britain are among the jurisdictions that imposed sanctions on Russia after its February 2022 invasion of Ukraine. They have continued to increase pressure on the country, targeting President Vladimir Putin, Russia's financial sector, and numerous oligarchs.

In addition to passing legislation allowing Russian firms to conduct international transactions via crypto, the Russian central bank will also be allowed to move money overseas using private digital currencies. Elvira Nabiullina, the Russian central bank governor, stated on Tuesday that crypto-based payments would begin before the end of 2024.

"We are already discussing the terms of the experiment with ministries and departments, with businesses, and we expect that the first such payments will take place before the end of this year," she said. The central bank's commitment to using crypto as a method of cross-border payment marks a reversal from the regulator's previous stance on the technology.

In January 2022, the Russian central bank proposed banning the use of crypto for transactions, as well as the mining of digital currencies, citing threats to financial stability, citizens' wellbeing, and monetary policy sovereignty. Separately, Russia is also exploring the implementation of a digital version of the ruble. Central Bank Governor Nabiullina said on Tuesday that the regulator plans to move from a pilot phase to mass implementation of the digital ruble starting July 2025, Russian news agency Interfax reported.

Can Crypto Help Countries Evade Sanctions?

Mati Greenspan of Quantum Economics stated that Russia's move to accept crypto "makes total sense from a global trade perspective." He added that this would "help the Russians open up cross-border payments with countries and businesses that would otherwise be closed to them due to U.S. sanctions."

Other sanctioned countries have often tried to bypass such financial restrictions through the use of cryptocurrencies. For example, North Korea has been accused on multiple occasions of raising millions of dollars in crypto to fund various state programs and evade foreign sanctions. The North Korean state-backed hacking group Lazarus was responsible for a major heist on the Ronin Network—a blockchain that supports a popular non-fungible token (NFT) game called Axie Infinity. The hack saw cybercriminals make off with over $600 million worth of digital tokens, according to blockchain analysis firms Elliptic and Chainalysis.

Iran, too, has been accused of using digital currencies to bypass international trade barriers.

Proponents of cryptocurrencies, on the other hand, argue that digital assets are a useful tool for countering illicit activities because the networks that underpin them, known as blockchains, are public and provide a historical record of transactions that is cryptographically secure and cannot be altered.