Bank of Russia proposed today to ban cryptocurrency investment and mining as governments around the world crack down on the decentralized currencies, citing a variety of threats including monetary stability.
At the moment, conducting transactions with cryptocurrencies is illegal in Russia, but investing and buying crypto through exchanges is permitted under a recent change. Russian citizens’ transactions using decentralized cryptocurrencies amount to $5 billion per year, says the the central bank, referring to “some estimates.”
From crypto, to fraud, to terrorism
In its consultation paper (available in English), the central bank uses harsh terms to justify its position: “In the long run, the potential of using cryptocurrencies for settlements seems limited. The rapid growth of their market value is predominantly spurred by speculative demand and expectations of a further rise in their prices, which leads to the formation of a bubble in the market. Cryptocurrencies also have signs of a financial pyramid as increase in their prices is largely driven by demand demonstrated by new market participants.”
The central bank sees in the development of cryptocurrencies “threats for retail investors, financial stability,” and much more:
- “High volatility and proliferation of fraud in cryptocurrency trading creates for individuals risk of losing a significant portion of their investments and even of becoming a debtor in case of leveraged trading;”
- “Just as dollarization, cryptoization limits monetary policy sovereignty, which might force central bank to permanently maintain a higher key rate in order to contain inflation. This will reduce the affordability of credit to both households and businesses;”
- “The spread of cryptocurrencies could make people withdraw their savings from the Russian financial sector and, subsequently, decrease its capability to finance the real sector and potential economic growth reducing the number of jobs and potential for household income increase;”
- “Cryptocurrencies are extensively used in illegal activities: money laundering, drug trafficking, terrorist financing,” as well as “extortions and bribery,” undermining the global effort to combat money laundering and terrorism.
Triple ban
All of this justifies the following radical measures, believes Bank of Russia:
- Forbid financial institutions to invest in or carry out any operations with cryptocurrencies;
- Ban cryptocurrency exchanges and any platforms that facilitate the circulation of cryptocurrencies;
- Ban crypto mining, which allegedly threatens Russia’s financial stability through its “unproductive consumption” of electric power “and the implementation of Russia’s environmental agenda.”
Meanwhile, the central bank has plans to issue its own digital ruble (see October 2020 consultation paper in Russian).
Final decisions are yet to come
According to RIA Novosti, which cited Bank of Russia’s head of financial stability, the current Russian legislation could be amended to ban crypto exchange, investment and mining in the coming months.
However, it is far from certain that the central bank’s proposals will become law, writes The Bell. “About nine agencies are involved in regulating the crypto-market, including the Finance Ministry, the Federal Tax Service, financial watchdog Rosfinmonitoring and the Federal Security Services (FSB). Only the Central Bank is insisting on a strict ban,” according to The Bell’s sources.
“For example, Rosfinmonitoring just wants to control the flow of funds from crypto to traditional assets, while the Finance Ministry wants to protect unqualified investors,” explains the online business publication.
According to Bloomberg, the FSB also advocates a ban on crypto activities. The secret service wants to deprive the opposition, “undesirable organizations” and “foreign agents” of access to funding through crypto, which is difficult to trace. Opposition and media donations account for an extremely small part of the volume of crypto transactions, however, the news agency notes.
Meanwhile, The Bell’s sources suggest otherwise: “there have even been hints that security officers who control informal money flows may have their own reasons to want to avoid strict regulation.”
