Official: Russia will use crypto exchanges for international transactions

Yesterday, the chairman of Russia’s State Duma Committee on Financial Markets, Anatoly Aksakov, confirmed that crypto exchanges will be used to conclude cross-border transactions, thus circumventing restrictions due to international sanctions. 

Although Aksakov is not technically a member of the government, he is nonetheless fully embedded in the state regime, so his words should be considered official, though not final. 

Russia and crypto

Russia’s relationship with cryptocurrencies has been complicated over time. 

At first they seemed to want to tolerate Russian citizens using them, partly because the country has perfect conditions for Bitcoin mining, for example. 

Later, however, the country’s central bank in particular tried to enforce a ban on their use, probably to safeguard the national currency and perhaps to try to pave the way for the digital ruble. 

However, the partial failure of the digital yuan in allied China may have prompted the Russian government to reconsider the idea of banning cryptocurrencies in favor of a national currency not particularly beloved at home. 

China’s turnaround

The turning point in China in this respect came a few days ago, when Hong Kong announced the removal of the ban on crypto trading for retail investors and speculators. 

Hong Kong has its own jurisdiction in some ways different from that of the motherland, but it is still for all intents and purposes part of Chinese territory.

In fact, it seems that the one in Hong Kong can be interpreted as a test of whether the conditions are right for the reopening of crypto trading throughout the rest of China as well. 

At this point, there has also been a turning point in Russia regarding the state’s attitude toward cryptocurrencies, especially since at the political level China now dominates the country ruled by Vladimir Putin. 

The turning point in Russia

Indeed, as confirmed by Aksakov himself, Russia has abandoned the idea of creating a state-owned crypto exchange, preferring a less centralized landscape. 

The key point is precisely the circumvention of the restrictions imposed by international sanctions in response to the invasion of Ukraine. 

Should Russia use a single crypto exchange in this sense, it may be easier for its enemies to intervene to try to block, boycott, or restrict its activity. 

Instead, using multiple exchanges actually makes life more difficult for those who would want to prevent Russia from using cryptocurrencies to circumvent sanctions. 

Therefore, Aksakov said that a new bill would be introduced that would frame the operation and use of crypto exchanges for international cryptocurrency transactions, which are currently still de facto banned. 

The chairman of the Duma Committee on Financial Markets himself has warned crypto exchanges deciding to operate in the Russian market that doing so could result in retaliation from enemy countries. 

Russia: getting around sanctions with crypto

Restrictions due to international sanctions effectively prohibit, or at least greatly restrict, cross-border fiat currency transactions to and from Russia. 

By contrast, they can do nothing against cryptocurrency transactions, but to make it easy to conduct crypto transactions, it is necessary to make it easy to exchange in fiat currency. 

This means both that those who want to send cryptocurrencies to Russia from abroad should be able to buy cryptocurrencies on an exchange by paying for them in fiat currency, then withdrawing them on a crypto wallet they own, and that those who receive them in Russia should be able to sell them on an exchange in exchange for rubles. 

The first part of this process is not at all difficult even now, not least because once cryptocurrencies are withdrawn on a proprietary wallet it is not only impossible to prevent them from being sent to another wallet owned by Russian people or companies, but it is also extremely difficult to know that they have been sent to Russian people or companies. 

The tricky thing is mainly the exchange of cryptocurrencies into Russian rubles, simply because cross-border cryptocurrency transactions are still frowned upon in Russia. 

However, it will be enough to frame them with legal regulations that make them legal for paving the way for these kinds of transactions to actually circumvent sanctions. 

As one can easily guess, it will be significantly easier for Russian exchanges to operate in Russia than for those, for example, based in countries that are currently banning sending funds to Russia. 

The new Russian law

Although this all seems entirely feasible, it does not seem particularly easy to adapt the new bill on cross-border cryptocurrency transactions to Russian law. 

Indeed, it will presumably take some time to be able to arrive at a complete and final version of the bill, although it is possible that the Russian parliament (the Duma) will try to speed things up a bit in order to make a similar legal instrument available to the country as soon as possible. 

According to the communications director of the crypto exchange Garantex, Evgenia Burova, the first such cross-border transactions could come a few months after the new law is adopted. 

Crypto exchanges will presumably be controlled by the central bank, because such transactions will have to be transparent to regulators. 

The censorship-resistance of cryptocurrencies

The goal of this initiative isn’t to hide cross-border cryptocurrency transactions to and from Russia, because nowadays there are several techniques to be able to somehow detect them, especially if they are recorded on public blockchains. 

The real goal is to become censorship-resistant, because once cryptocurrencies have been taken from exchanges and deposited on a proprietary wallet, it is absolutely impossible to prevent them from being sent to any other wallet. 

However, this is not true for every cryptocurrency, but it is true for the main ones. 

Thus, it is not surprising that Aksakov warned exchanges that will allow funds to be sent to Russia, as those cross-border transactions will most likely end up being discovered. 

However, not every country in the world right now prohibits sending funds to Russia, so for exchanges in friendly countries there should be no problem. 

It is also clear at this point why this initiative comes shortly after the Chinese one, given that China is Russia’s biggest ally at this time.