Key Takeaways
As sanctions continue to hinder Russia’s trade landscape, the country is actively seeking alternate solutions to stay afloat. One such effort is the use of digital assets, specifically stablecoins, to streamline cross-border payments.
Qifa, a digital platform that has facilitated the import of Chinese consumer goods to Russia since its inception in 2013, notes that crypto payments have substantially improved cross-border settlements between Russia and China. Traditional banking transactions, which often remain in limbo for months, are being bypassed in favor of these digital assets.
The U.S. has also been trying to broaden its sanctions to target Chinese banks, which would require them to implement more stringent compliance measures for financial transactions. In anticipation of this, Russia and China are proactively exploring crypto payments, specifically facilitated by stablecoins, to reduce their reliance on traditional banking channels that may be impacted by sanctions.
Alexey Guznov, Deputy Chairman of the Bank of Russia, confirmed that the Ministry of Finance and the Bank of Russia have been working together to align with global digital currency trends and discussing proposals to legislate the use of stablecoins for international transactions.
However, technical and regulatory challenges must be addressed to ensure these digital assets can be securely and efficiently used for international payments. Guznov highlighted the need for careful consideration of these issues as Russia moves forward with its plans to integrate other payment solutions into its trade settlements.
Amid evolving international trade dynamics and heightened geopolitical tensions, Russia and China are subtly shifting their stance on crypto regulations.
As CCN already reported, Russia is considering permanently using stablecoins for cross-border settlements to bypass Western sanctions. Following the approval of the Digital Financial Assets (DFA) law in March, key stakeholders like the Russian Union of Industrialists and Entrepreneurs have shown support.
Stablecoins appeals to Russia as it can evade tracking by foreign regulators, making it an attractive tool for maintaining liquidity and facilitating financial transactions with countries like China. In line with this initiative, Bank of Russia Governor Elvira Nabiullina has indicated a softer stance on using cryptocurrencies for international payments as Russia explores alternative global payment systems.
On the other hand, China maintains a stringent stance against the free use of cryptocurrencies within its borders. While it was once a massive hub for the crypto industry, China has since banned cryptocurrency transactions and mining operations, citing financial risks and environmental concerns. Despite this, China continues to invest in blockchain technology for its potential applications across various sectors, signaling a selective embrace of digital innovation while excluding the broader use of cryptocurrencies.
Further complicating the digital currency landscape, Russia and China are advancing their development of Central Bank Digital Currencies (CBDCs)—the digital ruble and digital yuan. These government-controlled digital currencies are poised to enhance the efficiency of cross-border transactions and reflect a strategic move by Russia and China to establish more autonomous financial systems in the face of international pressures.
In April this year, U.S. Undersecretary of the Treasury Wally Adeyemo addressed the Senate Banking Committee, highlighting a troubling trend: malicious actors’ increasing use of cryptocurrencies to circumvent traditional financial regulations. He specifically noted Russia’s use of the stablecoin Tether (USDT) to finance its war efforts without triggering sanctions, emphasizing the need for tighter regulations within the cryptocurrency industry to address these threats.
Adeyemo noted that in addition to terrorist groups like al-Qaeda and the Iranian Revolutionary Guard Corps, which have long used cryptocurrencies for illicit purposes, nation-states such as North Korea and Russia are also increasingly leveraging these digital assets to bypass regulations.
The Treasury Department has proposed a three-pronged approach to tackle these issues. The proposal advocates for secondary sanctions against foreign cryptocurrency businesses that facilitate transactions for sanctioned entities. It also calls for expanded regulatory authority to ensure cryptocurrency industry players implement robust KYC and AML procedures. Additionally, the approach includes measures to address challenges posed by offshore cryptocurrency platforms.