July 15, 2024

Russia Contemplates Stablecoins for Cross-Border Payments Amid Sanctions

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Amid the ongoing conflict in Ukraine and the increasing sanctions on Russia, the Russian government is considering the approval of stablecoins for cross-border payments as a workaround to sanctions and exclusion from the SWIFT system, according to a report from the country’s Izvestia news service.

Alexey Guznov, Deputy Chairman of the Central Bank, stated that this move aims to simplify international transactions for Russian companies, particularly in their dealings with China. “Russian authorities want to legalize stablecoins for international payments. This possibility is currently being discussed, proposals have already been formulated,” Guznov told Izvestia. He emphasized that the measure is intended as a permanent solution rather than a short-term experiment.

Guznov explained that the plan involves regulating the entire process, enabling individuals to transfer these assets into Russia, accumulate them domestically, and use them for cross-border payments. The impact on stablecoins like Tether’s USDT, Circle’s USDC, Paxos’ PAXG, and XMG Digital Assets Network’s USXM remains uncertain due to the ongoing role of sanctions.

“We are talking about tokens issued in foreign information systems,” Guznov said. “In some parameters, stablecoins may resemble digital financial assets (DFA), in others, cryptocurrencies, so it will be necessary to tighten regulations. Stablecoins are popular and can be adapted to fit different needs.” The Russian government is still working out the details, and Guznov hopes these plans will soon be reflected in legislation.

This concept has been under discussion since 2023, with the State Duma drafting a bill in April to establish regulations for the proposed scheme. Unlike traditional cryptocurrencies like Bitcoin, stablecoins are typically backed by assets with a central issuer, addressing concerns that previously led the Bank of Russia to oppose legalizing digital assets.

In May, reports emerged that Russian commodities firms were already using fiat-pegged digital currencies for transactions with Chinese counterparts to circumvent sanctions. Guznov’s latest comments suggest that the Russian government is now looking to formally recognize this process to ease the strain on Russian businesses conducting international transactions.

These developments follow Russia’s recent decision to replace the U.S. dollar with China’s yuan as the benchmark for all currency trades, a move that shocked international markets when announced on June 13. The Bank of Russia attributed the decision to a shift in trade flows to the East and the use of rubles, yuan, and other currencies of friendly countries like China, Serbia, Mexico, and Brazil, which have not joined the Western sanctions regime.

“The exchange rate of the yuan/ruble will set the trajectory for other currency pairs and will become the benchmark for market participants,” the Bank of Russia stated. China’s trade with Russia has surged since the February 2022 invasion of Ukraine, reaching a record value of $240 billion in 2023.

These moves also coincide with the rising prominence of the BRICS bloc on the international stage and rumors of a common BRICS currency. Reports in May indicated that BRICS is working on an independent payment system based on digital currencies and blockchain, a plan that Kremlin aide Yury Ushakov termed a “Contingent Reserve Arrangement.”

“We believe that creating an independent BRICS payment system is an important goal for the future, which would be based on state-of-the-art tools such as digital technologies and blockchain,” Ushakov said. “The main thing is to make sure it is convenient for governments, common people, and businesses, as well as cost-effective and free of politics.”

Ushakov noted that the primary goal for 2024 is to increase the role of BRICS in the international monetary and financial system, including a move away from the U.S. dollar in settlements as part of a broader de-dollarization trend. The 2023 Johannesburg Declaration called for increased settlements in national currencies and strengthened correspondent banking networks to secure international transactions.

“Work will continue to develop the Contingent Reserve Arrangement, primarily regarding the use of currencies different from the US dollar,” Ushakov said.

Financial Desk

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