By now, we are all familiar with the versatile use of cryptocurrencies. From enabling fast and borderless transactions to serving as an investment vehicle, digital currencies have demonstrated their capacity to disrupt traditional financial systems.

On July 30, 2024, Russian lawmakers passed a bill that will allow local businesses to use cryptocurrencies in international trade deals in an effort to side-pass Western sanctions.

Russia is not the first country to turn to cryptocurrencies in an attempt to side-pass imposed sanctions with North Korea also reportedly using digital currencies for the same reason.

How significant is Russia’s latest move to the crypto community? And can crypto truly be used to circumvent sanctions? We turn to the experts.

Russia to Allows Businesses to Use Crypto in Deals

Russia’s State Duma passed a first-of-its-kind bill on 30 July 2024 stating that the country would allow businesses to use cryptocurrencies to secure international deals.

According to Russia’s central bank head, Elvira Nabiullina, who spoke at the Federation Council’s Financial Market Development Board meeting, the scheme is set to start under “an experimental regime” and will be pioneered before the end of the year.

Anton Gorelkin, a member of the State Duma and the co-author of the bill, added:

“We consider cryptocurrencies to be a tool which we can use to bypass sanctions as well as a point of high-tech export. Today, Russia ranks second highest in mining [crypto], and I am confident that once regulation in this area is established, we will surpass the United States, taking first place.”

According to industry experts, Russia’s bill is considered a “strategic move” to sidestep Western sanctions, as the country itself has stated — “but it also represents a significant shift in Russia’s global trade strategy amid increasing financial isolation,” Anndy Lian, an inter-governmental blockchain advisor, told Techopedia.

Lian added that the country’s current move is particularly noteworthy, seeing as Russia has previously had a pretty powerful anti-crypto stance, thus “indicating a programmatic shift in response to economic pressures”.

Financial Agents as a New Emerging Group

Dmitry Mishunin, the CEO of HashEx Blockchain Security, told Techopedia that Russia is most likely not evading sanctions through the use of cryptocurrency but giving way to a new group of financial agents — middlemen who perform transactions for importer companies.

“The scheme is simple: the importer pays the agent in rubles, and the agent pays in other currencies to the exporter.

 

“And this can be certified as a transaction between the supplier and the buyer without mentioning the agent.

 

“No one can say for sure how specifically these agents work. Some transfer their money through friendlier countries, some indeed use cryptocurrency.

 

“However, more often than not agents are smaller companies that belong to large financial institutions.”

Mishunin added that such agents often charge 15% for their services, however, the legislative basis for crypto payments within the country could open up the market for smaller-level agents who could lower the price for their services to 10% — a positive step for the country’s economy.

Lian further explained that while cryptocurrencies do provide a theoretical means to bypass sanctions, the practical implementation remains “complex and fraught with risks”.

“Cryptocurrencies offer a degree of anonymity and can facilitate cross-border transactions without relying on traditional financial systems, which are often subject to sanctions.

 

“However, the transparency of blockchain technology means that transactions can be traced, and major exchanges typically comply with international regulations, including sanctions.

 

“Regulatory scrutiny is increasing, and many countries are implementing stricter controls on cryptocurrency transactions to prevent their use in illegal activities … Therefore, while possible, using cryptocurrencies to evade sanctions is not a foolproof or widely adopted strategy.”

RUB/USDT Pair Could See Growth

Meanwhile, while some investors may avoid stablecoins, industry experts are noting that the RUB/USDT pair could see much movement in a deal like this.

“The other side of this coin is satisfying the demand for crypto assets. We might actually witness a deficit in the RUB/USDT pair, in case the demand from importers starts growing.

“It is one thing to provide your services to tourists and some professionals, new market demands are an entirely different thing,” HashEx’s Mishunin explained.

CEO of bitsCrunch, the AI-enabled decentralized, blockchain data network, Vijay Pravin, further highlighted the role popular stablecoins such as USDC and USDT could play in this deal due to their price stability and widespread acceptance.

“Cryptocurrencies with robust privacy features could be appealing options due to their transaction anonymity.”

Regulatory Environment Continues to Remain Complex

Despite the recent bill, Russia’s recent legalization of crypto mining, which is set to take action from November 2024, as well as continued efforts to pilot the digital ruble, crypto regulations in Russia continue to remain complex.

Lian explained:

“Compliance with Russian regulations is essential to avoid legal repercussions. Internationally, businesses must navigate the varying legal frameworks of different countries, many of which have stringent regulations on cryptocurrency transactions to prevent money laundering and other illicit activities.

 

“Additionally, major cryptocurrency exchanges often comply with international sanctions, limiting the ability of sanctioned entities to use their platforms.”

BitsCrunch’s Pravin added that Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations are also something Russian businesses interested in conducting business via the use of cryptocurrencies should keep in mind.

“Additionally, navigating sanctions enforcement by other countries and managing cross-border legal discrepancies will be crucial to avoid further legal complications.”

Either way, however, experts agree that the introduction of such a bill is a means to strengthen ties with Russia’s friendlier nations and those that are also looking to bypass Western sanctions such as Iran and China.

“On one hand, it might strengthen ties with countries that are also looking to bypass Western sanctions, such as Iran and China, fostering a bloc of nations using alternative financial systems. On the other hand, it could strain relationships with countries that adhere to international sanctions and regulatory standards,” Lian explained.

Cryptocurrencies Could Offer Sanctioned Countries a Path

Lian added: “Countries like Iran and North Korea have reportedly used cryptocurrencies to evade international sanctions. Iran has explored using Bitcoin for international trade to bypass banking restrictions, leveraging its abundant energy resources for mining. North Korea has been involved in cyber activities to steal cryptocurrencies, which are then laundered to fund its regime.

“These cases show that while cryptocurrencies can offer a way to circumvent traditional financial systems, they come with significant risks and challenges.”

The aftermath of such actions was increased scrutiny from international bodies that, in turn, limited the effectiveness of the countries’ strategies.

For Russia, Lian explains that the situation is similar, but on a larger scale seeing how the country has a more significant economic footprint.

“The use of cryptocurrencies could provide some relief from sanctions, but the associated risks, including regulatory crackdowns and the volatility of crypto markets, make it a complex and uncertain strategy.”

BitsCrunch’s Pravin added that global efforts to enforce international crypto regulations could present more challenges for Russian businesses that are looking to engage in financial trades using crypto.

HashEx’s Mishunin, on the other hand, noted that any movement from the Russian government in the direction of crypto regulation instead of embargoes is a positive thing and could work wonders for the Russian economy.

The Bottom Line

Russia’s new bill to legalize cryptocurrency use in international trade represents a strategic move to bypass Western sanctions and adapt to political pressures. While this move could provide some relief and foster high-tech exports, it introduces complexities and risks, including regulatory scrutiny and potential legal challenges.

The future of crypto adoption in global trade, particularly for countries under sanctions, continues to remain uncertain. Lian concludes that in the long term, the integration of central bank digital currencies (CBDCs) could offer a more regulated and widely accepted solution for international trade, even for sanctioned nations.

 

Source: https://www.techopedia.com/can-crypto-bypass-sanctions