Russia is considering permanently legalizing stablecoins to promote cross-border payments

The Russian government is considering regulating the entire flow process of stablecoins, including the domestic transfer, accumulation, and use of these assets in cross-border payments.

The Russian government is considering the formal legalization of stablecoins for international transactions in order to simplify cross-border payments for Russian businesses as sanctions continue, according to Izvestia, citing sources from the Central Bank of Russia on July 3.

It is reported that the Central Bank of the Russian Federation is actively evaluating a proposal to allow the use of crypto assets pegged to stable value assets such as the US dollar or gold. These assets have relatively low volatility and are more stable compared to other cryptocurrencies.

Potential Solutions for Stablecoins or Sanction Response Strategies

Alexei Guznov, Deputy Chairman of the Central Bank of Russia, confirmed the government’s plan to incorporate stable coins into the regulatory system and emphasized the importance of regulation throughout the process from domestic transfer and accumulation of assets to cross-border payments. He further explained that this measure is aimed to be a long-term regulation, not a short-term experiment. Guznov also mentioned that stable coins, although similar to digital financial assets (DFA) and other cryptocurrencies, require appropriate adjustments to the existing regulatory framework due to their unique attributes and popularity.

The report points out that stablecoins, as an international settlement tool, especially in transactions with BRICS countries (Brazil, Russia, India, China, and South Africa), have shown great potential. Therefore, experts believe that stablecoins can inject a large amount of liquidity and long-term capital into the market. At the same time, the Russian Union of Industrialists and Entrepreneurs (RSPP) also believes that stablecoins are a key tool to enhance cross-border transaction capabilities in the face of Western sanctions.

In March 2024, Russian President Vladimir Putin signed a law allowing DFA to be used for international payments. However, due to concerns about possible secondary sanctions, the implementation of this law has not been fully rolled out. At the same time, due to limitations in convertibility and liquidity, Russia’s DFA is currently not compatible with the global cryptocurrency market, which restricts its application in international payments.

Limitations and Potential of Stablecoins in Russia

Stablecoins have become extremely popular in global trading, with transaction volumes in Q1 2024 reaching as high as $6.8 trillion, on par with the full-year volume of 2022. However, in Russia, the use of stablecoins is currently limited to specific programs of a few companies, especially those involving transactions with China.

Experts believe that in order to facilitate stable coin trading, it is necessary to establish a clear regulatory framework and solid infrastructure. This involves establishing clear rules for the cryptocurrency and mining industries to ensure the legality and transparency of transactions.

If Russia legalizes stablecoin payments, it will be more widely used in Russian companies, including state-owned enterprises, simplifying transaction processes and complying with tax regulations.

However, the European Union recently implemented a new round of sanctions, banning European organizations from using Russia’s financial information transmission system (SPFS), which is said to be an alternative to SWIFT. In addition, Russia plans to disconnect from SWIFT in 2022, making the development of alternative payment mechanisms particularly urgent.

Stablecoins provide a possible solution that can bypass the traditional financial systems like SWIFT, helping to address these challenges.

Conclusion:

In the midst of global economic uncertainty, the Russian government is actively embracing financial innovation, exploring the regulation and legalization of stablecoins to address challenges in the international payment system. This move not only demonstrates Russia’s strategic response to economic sanctions, but also reflects its determination to enhance the autonomy of the financial market.

With the gradual improvement of the regulatory framework and the construction of infrastructure, stablecoins are expected to establish a formal position in the Russian financial system, providing efficient and low-cost cross-border payment solutions for enterprises. This move will not only help Russian businesses expand their international operations but also potentially provide new impetus for the development of global financial technology, ushering in a new era of cross-border payments.