(Kitco News) – Amid the ongoing conflict in Ukraine and increasing sanctions on Russia, a report from the country’s Izvestia news service suggests that the Russian government is mulling the approval of stablecoins for cross-border payments as a workaround to sanctions and exclusion from the SWIFT system.
According to Alexey Guznov, Deputy Chairman of the Central Bank, the move is being considered to help simplify Russian companies’ international transactions under the sanctions regime, especially for 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. “The question is to regulate the entire chain that would allow individuals to transfer these assets to the territory of the Russian Federation, accumulate them here, and use them for cross-border payments.”
He added that the measure is being considered as a permanent solution rather than just a short-term experiment.
“We are talking about tokens issued in foreign information systems,” he 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.”
Guznov noted that the Russian government is still working out the finer points of the potential move, and he hopes “that in the near future, it will be reflected in the text [of the bill].” He added that the possibility of using cryptocurrencies for cross-border payments remains on the agenda.
This idea has been discussed since 2023, and in April the State Duma drafted a bill establishing regulations for the proposed scheme.
Unlike traditional cryptocurrencies including Bitcoin (BTC), stablecoins are typically backed by assets that have a central issuer, which helped ease the concerns that previously prompted the Bank of Russia to oppose legalizing digital assets.
In May, reports emerged that Russian commodities firms were already starting to utilize fiat-pegged digital currencies to execute financial transactions with their Chinese counterparts to circumvent sanctions.
The latest comments from Guznov indicate the Russian government is now looking to formally recognize the process as legal in a bid to ease the strain on Russian business when conducting international transactions.
The work to adopt stablecoins for cross-border payments also comes on the heels of Russia announcing that China’s yuan would replace the U.S. dollar as the benchmark for all currency trades in the country, a move that shocked international markets when it was announced on June 13.
The Bank of Russia said the measure was taken due to a “redirection of trade flows to the East and the change in the currency of settlements to rubles, yuan and other currencies of friendly countries,” referring to states like China, Serbia, Mexico and Brazil that 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,” they said.
China’s trade with Russia has increased dramatically since the Feb. 2022 invasion of Ukraine, reaching a record value of $240 billion in 2023.
These developments also come as the prominence of the BRICS block is increasing on the international stage, while rumors of the creation of a common BRICS currency grow with each passing day.
In May, reports indicated that BRICS is working to create an independent payment system based on digital currencies and blockchain, a plan that Kremlin aide Yury Ushakov called 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 said the primary goal of the work being done in 2024 is to increase the role of BRICS in the international monetary and financial system. This includes a move away from the U.S. dollar in settlements and is part of a larger de-dollarization movement taking hold around the globe.
He noted that in the 2023 Johannesburg Declaration, the leaders determined that BRICS countries needed to increase settlements in national currencies and strengthen their 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.
