While the unrecognised country of Transnistria plans its Bitcoin mining takeover, neighbor Russia has had a rollercoaster relationship with cryptocurrency. The latest news is that the Eastern European economic giant will be creating an in-house state-issued cryptocurrency: Introducing the CryptoRuble.
Here, we track the Russia’s journey from banning crypto to creating its own cryptocurrency.
The Initial Yes
After initially sitting out on the crypto debate, Sberbank, Russia’s third-largest bank, came out in favor of the alternative economic system in December 2013. CEO Herman Gref acknowledged that, pending market demand, the bank would consider partaking. He also likened Yandex Money, Russia’s largest electronic payment system, as a first step towards making virtual currency part of the national economy.
According to Gref:
“It’s a very interesting global experiment that breaks the paradigm of currency issuance.”
Gref, former Minister of Economics and Trade, backed up his positive opinion by encouraging the Central Bank, the Ministry of Finance, and the Kremlin not to curb the development and growth of cryptocurrency in the country through the introduction of a proposed ban on all “non-identifiable currencies.” (Original document here.)
The Central Bank of Russia Speaks Out
But the positive sentiment didn’t last.
In January 2014, the Central Bank of the Russian Federation responded by issuing its first statement about cryptocurrencies, calling them speculative, high-risk, and not backed by state entities. They also cited a clause in Russian federal law:
“According to Article 27 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, issuing monetary surrogates is prohibited in the Russian Federation.”
(Original press release here.)
Yes, No, Maybe?
That was only the beginning of Russia’s conflicting relationship with crypto. Since then, the government has been in seeming disarray as it tries to establish a firm footing on the matter. Between 2014 and 2016, the Ministry of Finance and Ministry of Economic Development battled it out, expressing conflicting opinions on the use of cryptocurrency.
At one time, it was stated that Bitcoin traders would be jailed as cyber criminals. Amidst fierce criticism, the Prosecutor General’s Office and the Ministry of Justice announced in August 2016 that it would not pursue criminalization of virtual currencies. (Original news source here.)
The Debate Continues
At the end of August 2016, Russia’s deputy minister of finance, Alexey Moiseev, likened Bitcoin to a high-risk “financial pyramid” which warrants tight regulation. So much so, in fact, that the Ministry of Finance stated it had plans to prohibit private investors from accessing Bitcoin exchanges. Qualified traders alone would be allowed to invest.
Mere days later, on September 4, the Russian Central Bank issued a statement warning the public about investing in cryptocurrencies. It announced that the bank would be monitoring cryptocurrencies and developing, together with the state, a legal framework to regulate crypto. The notice reads:
“Cryptocurrencies are issued by an unlimited number of anonymous entities. Hence, citizens and legal entities can get involved in illegal operations, including laundering of illegal income and terrorism financing.”
(Original press release here.)
The plan to regulate was confirmed by Finance Minister Anton Siluanov at the Moscow Financial Forum. He said:
“The state understands indeed that cryptocurrencies are real. There is no sense in banning them, there is a need to regulate them.”
The minister added that the state is tasked with making “an organized market out of the black market.”
The Russian Federation was concerned – like many other governments around the world – about ICOs. They also raised eyebrows over possible ownership issues faced by currency holders, noting that it would be difficult to protect consumers’ rights. With companies like Burger King launching their own in-house cryptocurrency, it’s no wonder the state was becoming alarmed.
Given this background of changing state policies, it’s not hard to understand why most Russian traders have lived with regulatory uncertainty in the last few years. It has become as important to keep up with the latest in government policy as it is to stay abreast with market prices.
Blockchain and ICO expert Arseniy Strizhenok has expressed his concern over the grey area in which cryptocurrencies find themselves:
“Currently, from a legal standpoint, transactions using cryptocurrencies are forbidden to legal entities such as companies, but they are neither allowed nor forbidden to individuals. While certain institutions try to make steps to authorize cryptocurrencies, some others do everything they can to ban or restrict them. And this is only creating confusion.”
The President Sets A New Direction
However, when seen in the light of recent announcements, it would appear that Russia wasn’t as dazed and confused as it led the media to believe all along. Instead, the country might merely have been readying itself for its own national cryptocurrency.
Days ago, whilst meeting with the Ministry of Finance and the Central Bank, President Putin set the initial scene:
“As is known, many countries are looking for ways of regulating the circulation of cryptocurrencies and are beginning to create the necessary legislative framework, a legislative regulatory system.
We need – based on international experience – to build a regulatory environment that will make it possible to codify relations in this sphere, reliably protect the interests of citizens, businesses and the state and provide legal guarantees for using innovative financial instruments.
I would like once again to draw your attention to the need to use the advantages that are offered by new technological solutions in the banking sphere.
At the same time it is important not to create unnecessary barriers, of course, but rather to provide essential conditions for advancing and upgrading the national financial system.”
And it seems the country will be doing just that.
The Move Towards the CryptoRuble
Putin’s instruction comes after Prime Minister Dmitry Medvedev signed off on including cryptocurrency in a national financial literacy program, noting that it’s an important inclusion.
“In the strategy to increase the financial literacy of Russians, it is necessary to include the topic of cryptocurrency,” said Medvedev.
Olga Skorobogatova, Deputy Governor of the Central Bank, came full circle in terms of the market need that was first referenced by Gref back in 2014. During a 2017 International Economic Forum (SPIEF) in St. Petersburg, she volunteered the bank’s opinion:
“The creation of a national cryptocurrency stimulates the growth of non-cash payments and electronic payments, including, possibly, cross-border payments.”
At the same forum, President Putin met with Ethereum founder Vitalik Buterin. According to the president’s office:
“Mr Buterin described the opportunities for using the technologies he developed in Russia. The President supported the idea of establishing ties with possible Russian partners. The conversation was held following the President’s meeting with heads of major foreign companies and business associations.”
The Dawn of the CryptoRuble
According to a breaking news report by CoinTelegraph, Minister of Communications Nikolay Nikiforov announced that Russia will be launching its own centralized cryptocurrency. While few details have been made available as yet, the minister has released the following information:
- It will not be a mining coin
- It will be state-issued and state-controlled
- It will require full acquisition transparency at all times, else a 13% tax will be levied
The minister proclaimed,
“I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after 2 months our neighbors in the EurAsEC will.”
It appears that in the game of Russia vs Cryptocurrency, the government is in the lead.