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Russia's Central Bank worries about crypto ‘infection' of the broader economy

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(Kitco News) - Ksenia Yudaeva, First Deputy Chair of the Central Bank of Russia (CBR), said Russian businesses using cryptocurrencies in cross-border settlements must do so in a way that ensures crypto does not spread throughout the Russian financial system.

“Our main condition, as the Central Bank, is that the creation of such platforms does not lead to the infection of our financial system with cryptocurrencies and does not create a stir in society associated with the desire to hold [digital assets],” she told the Eurasian Economic Forum on Wednesday.

“We have always been, are and remain against encouraging or allowing the use of cryptocurrencies within Russia, but we believe that cryptocurrencies and digital assets can be used in international trade,” Yudaeva said.

While the CBR has repeatedly expressed its disapproval of “private cryptocurrencies” such as Bitcoin, it began allowing them to be used by companies and individuals in September to settle cross-border transactions after Russian banks were cut off from their foreign counterparts.

On April 20, members of the Russian Duma submitted amendments to the law on experimental legal regimes in the field of digital innovation which allow the Central Bank to create an experimental platform for the use of cryptocurrencies and digital financial assets (DFA) in international settlements.

“This is supposed to work out the use of digital financial assets for international settlements,” said Elvira Nabiullina, the head of the Russian Central Bank Nabiullina at the time, while reiterating that settlements in cryptocurrency within the country are still illegal.

But despite their policy safeguards, the Central Bank’s own research shows that Russian citizens are increasingly turning to cryptocurrencies as their preferred store of value.

The results of the CBR’s latest nationwide survey of consumer and household finances published March 31 revealed that Russian families now hold more wealth in crypto assets than mutual funds or gold.

The survey, which has been conducted every two years since 2013, included more than 6,000 households and over 12,000 individuals in 38 regions across Russia. The report included data collected from April to August 2022 and compared it to figures in the previous study from 2020.

The survey showed that Russian households held a median average value of 17,500 rubles (~$225) worth of crypto assets, with more than half of families reporting holdings that exceeded the survey’s reporting threshold.

More than 65% of the households surveyed indicated that they had financial assets of some kind, with a median value of 15,700 rubles ($200). Additionally, 64.5% of these households also held savings in a bank, with a median average of 15,000 rubles.

Breaking the statistics down further, the results show that 0.4% of the families surveyed indicated that they hold Bitcoin and/or other cryptocurrencies. While this number is small when compared to the total population, these crypto holdings actually surpassed those of gold and mutual funds, which each recorded a 0.3% rate within the Russian population.

The findings of this study are at odds with previous government estimates which put Russian crypto adoption at only 12% of the population.

Russia has seen an uptick in its activities related to cryptocurrencies since the start of the war in Ukraine as the nascent asset class provides a workaround to Western sanctions, which included Russian banks being cut off from the SWIFT banking system.

Russian lawmakers are also currently working on plans to launch a national crypto exchange by the end of the second quarter, and they are in ongoing talks with lawmakers in Iran to develop a gold-backed stablecoin to be used as a means of payment in foreign trade settlements in place of the dollar, the Russian ruble, or the Iranian rial.

In April 2022, the International Monetary Fund warned that Russia could use the crypto ecosystem to get around the Western sanctions that have been imposed on the country since it invaded Ukraine in February of last year.

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