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Russia's Crypto Ban Will Ease Risks But Limit Tech Diffusion: Fitch

The proposed attempt by the Central Bank of Russia (CBR) to ban digital currencies and related operations in the country has been identified by Fitch Ratings, a platform that publishes ratings, criteria, and methodologies on global economic issues, as a double-edged move that has its ups and downs.

The Good and Bad the Russian Ban Could Stir

According to Fitch, the CBR’s crypto ban can help forestall the risks that cryptocurrencies can pose to the broader financial ecosystem in the country. This will help provide a good soft landing for the Central Bank Digital Currency (CBDC) or Digital Ruble the CBR is looking to introduce.

However, President Vladimir Putin reportedly backs the proposal of crypto mining, rejecting the suggestion of a total ban of crypto from CBR, according to Bloomberg. Kremlin did not comment on Putin’s stance yet.

Russia enjoys the third-largest crypto mining status, after the U.S. and Kazakhstan. Previously, Blockchain.News reported that the CBR wanted to place a blanket ban on cryptocurrencies, cryptocurrency-based transactions, and Proof-of-Work (PoW) mining activities in the country. While the plan has been staunchly opposed by top tech and political oligarchs in the country, the CBR seems resolute in trailing China which placed a similar ban on the nascent asset class last year.

While the ban will eliminate risks, as pointed out, should the CBR have its way in banning the asset class, Fitch said the central bank will increase its “capacity to monitor and manage financial flows, which the growth of cryptocurrency transactions might otherwise erode.”

Per the implications of the ban and coupled with the proposed CBDC introduction, deposits in banks are poised to be impacted as well as a stump on technological innovations in the country.

“We believe the introduction of the CBDC may result in some deposit outflows from the banking system, modestly increasing competition for funding and raising interest rates,” the report reads, adding the ban “could set back Russian banks’ engagement with the technologies underlying the cryptocurrency sector.”

Russian Crypto Ban Still Hangs in the Balance

The ban on cryptocurrencies is a much-debated social, economic and financial issue in Russia, whose crypto ecosystem is estimated to be worth about $5 billion annually. While the proposed ban has been widely publicized, it is not yet in effect, and its hopes rest on the comment that is being solicited from members of the public.

Many countries, including India, have explored banning crypto for a long time; However, the authorities are exploring a more proactive measure to engage with the growing industry through comprehensive regulations that are still in the works.

Russia’s Central Bank Makes U Turn about Crypto Usage in International Payments

As a change of tune, Russia’s central bank is relieving its previous tough stance about cryptocurrencies by allowing their usage in international payments, as reported by Reuters.

The First Deputy Governor of the Central Bank of Russia (CBR), Ksenia Yudaeva, noted:

“In principle, we do not object to the use of cryptocurrency in international transactions.”

Despite Yudaeva reiterating that the central bank still saw the wider usage of crypto in the nation as a financial threat, the latest revelation shows restrictions are being eased.

He pointed out:

“We still believe that the active use of cryptocurrency within the country, especially within Russia’s financial infrastructure, creates great risks for citizens and users. We believe that in our country, those risks could be reasonably large.”

This announcement comes days after the nation’s finance ministry hinted that permitting cryptocurrency in international payments would assist the nation in countering Western sanctions based on its invasion of Ukraine.

“The idea of using digital currencies in transactions for international settlements is being actively discussed,” Ivan Chebeskov, the head of the finance ministry’s financial policy department said.

The nation’s central bank had previously indicated that crypto transactions were unwelcome on Russian soil because it deemed them criminal.

Earlier this year, the CBR went on the offensive by calling for a blanket ban on crypto-related activities, despite objections from various entities like the finance ministry. The ministry had argued that the blanket ban would violate the interest of citizens and consumers of crypto services.

Therefore, the back and forth witnessed suggests that Russian officials are delving deeper into how to regulate the nation’s crypto market and digital currency usage.

Russia's Sber to Complete Digital Assets Issuance by July

One of Russia’s largest financial institutions, Sber, is well on track to begin trading Digital Financial Assets (DFA) on its newly developed trading platform.

As reported by the TASS state-sponsored news agency, which interviewed Anatoly Popov, Deputy Chairman of the Board of Sberbank, the trading activities are billed to commence within the next month.

Sberbank as it was previously known had been building its DFA trading platform for quite some time, but securing a license from the Central Bank of Russia (CBR) had been much of a hassle. With the license now secured, the bank is committed to considering all forms of digital assets and technologies, with blockchain technology inclusive.

“We are watching the development of new technologies, including in the field of distributed registries, we are studying how blockchain technologies are developing. Currently, many projects are using them, and in Sber, of course. In the spring, we were included in the register of information system operators in which digital financial assets are issued. Our platform has already passed acceptance tests, and the first transaction will take place within a month,”

Anatoly said.

Besides Sber, VTB, Russia’s second-largest banking firm is also reportedly coordinating efforts to launch the trading of its own DFA around September this year. This growing embrace of DFAs aligns with the subtle clamour for the CBR to permit digital currencies to thrive in Russia.

With the ongoing war with Ukraine and the growing list of sanctions on the Russian economy and financial sector, even government officials have advocated for DFAs to be regulated in Russia. Doing so may create a new channel that can help power global trade and other financial transactions in areas where Russians might currently be restricted.

Sber is channelling positive momentum in its DFA pursuit as it previously launched the Sberbank stablecoin.