Russia is set to begin testing cross-border cryptocurrency payments next week in an attempt to bypass international sanctions, but experts warn that the effort may be futile due to the traceability of blockchain transactions and the potential for even stricter sanctions.
The new legislation, passed in July and quickly signed into law by President Vladimir Putin, allows cross-border payments using cryptocurrencies but does not lift the existing ban on using them as legal tender within Russia. The law grants Russia’s central bank the authority to oversee an “experimental” regime for these payments, though specific rules and mechanisms remain unclear.
Russia has faced severe economic sanctions from the U.S., European Union, and other countries since its invasion of Ukraine in February 2022. These sanctions, which include freezing about half of Russia’s foreign currency reserves and disconnecting select Russian banks from the SWIFT interbank messaging system, have crippled its economy.
“The passing of these bills by the Russian government signals a continuation of Russia’s evolving strategy to circumvent Western sanctions,” said Valerie Kennedy, Director of Investigations at blockchain analytics firm Chainalysis. However, she added that it has been difficult for Russia to avoid the U.S. dollar and euro via the SWIFT system, increasing the risk of secondary sanctions—penalties designed to prevent third parties from trading with a sanctioned nation.
As the law takes effect on September 1, some details have begun to emerge. A copy of the law viewed by CoinDesk reveals that the Russian central bank will oversee the experimental regime, with input from domestic stakeholders. “Some players, including us, have already come with our own proposals,” said Anti Danilevski, founder and CEO of Kick Ecosystem, a crypto firm closely engaging with regulators. The central bank, he added, is moving quickly and may soon finalize the regime.
According to a Bloomberg report, Russia plans to use its National Payment Card System for swapping between rubles and cryptocurrencies during the trials. If successful, the Moscow Exchange and the St. Petersburg Currency Exchange could establish crypto platforms next year.
Despite these plans, many details remain unclear, including the exact parameters of the regime, which currencies will be traded, and how participants will access trading. The central bank has the flexibility to modify oversight of the trials at any time, further adding to the uncertainty.
While the law does not explicitly state its purpose, recent comments from senior Russian officials indicate that it is aimed at using crypto to counter sanctions. However, the inherent traceability of blockchain transactions and the threat of more severe sanctions make the success of Russia’s crypto strategy uncertain.
