(Kitco News) – Yuri Chekhanchin, the head of Russia's Federal Financial Monitoring Service, has called for the Russian government to accelerate the creation of infrastructure for payments in cryptocurrencies, while also carefully weighing the associated risks, to help combat the struggles its economy faces due to sanctions.
According to a report from Reuters, Chekhanchin made the comments on Wednesday ahead of a parliamentary vote on digital assets legislation, saying the move is needed to help support Russian businesses.
"This is a need for businesses, especially in cases involving sanction mechanisms, when they need to enter the international market, and it can't always be resolved through standard methods," Chekhanchin said.
Russia has grappled with extended delays when conducting international transactions with major trading partners such as China, India, the United Arab Emirates and Turkey, due to pressure from Western regulators on local banks, which have become more cautious about facilitating such transactions.
Under the new legislation expected to be reviewed by parliament on July 23, cryptocurrencies will be allowed for use in international payments to maintain trade flows.
Looser cryptocurrency legislation in some countries was cited as the main risk by Chekhanchin, who said his watchdog should have the right to block such transactions when they break Russian law.
While Russia is moving towards using digital assets for cross-border transactions, their use for payments inside the country is still prohibited, and the new law doesn’t change that. The Central Bank of Russia previously admitted that payment problems were one of the key challenges for the Russian economy.
On Wednesday, Russian President Vladimir Putin spoke at a government meeting on the use of digital currencies, praising the progress made on the experimental introduction of a digital rouble. He also highlighted the risks that cryptocurrency mining farms posed to energy supplies in some regions of Siberia and said tax and electricity tariff regulation for mining farms should be part of the new law.
Blockchain technology has emerged as one of the top solutions to the problems countries like Russia face in the international marketplace due to sanctions. The Russian and Iranian central banks are working to connect their digital currency systems to enable bilateral transactions as a workaround. Russia is also working to set up a similar agreement with China and Belarus.
Deepening trade relationship with China
Chekhanchin’s calls to hasten the approval of the use of cryptocurrencies for international payments come as multiple major Russian commodity exporters say trade with China has become a riskier proposition. They said that “direct payments made in yuan are increasingly being frozen or delayed after the US in June broadened the criteria for imposing sanctions,” according to Bloomberg.
The June change in parameters for determining whether to impose secondary sanctions broadened the definition of Russia’s military-industrial base to include more industries with an ancillary link to military activities.
Executives from three commodities exporters, who asked to remain anonymous due to the sensitive nature of the issue, said it has become extremely difficult or even impossible to make direct payments from China to Russia under the current sanctions regime, even when using the yuan.
An individual from a Russian agricultural trading firm verified this, saying that some Chinese buyers of Russian farm goods have also experienced issues with payments this month. The experience was similar regardless of the industry, with representatives from the metals, agriculture, and automobile industries all saying that they have struggled due to difficulties with payment settlements.
While Russia has held up fairly well thus far in the face of escalating sanctions, these latest reports suggest the sanctions are slowly taking a toll on the country’s economy.
According to a July report from the Bank of Russia on macroeconomic and financial trends, they have observed “a decrease in the degree of openness in the Russian economy, which is reflected in a decline in the share of imports and exports in GDP, and an increase in the role of domestic demand and production.”
Since late 2023, Russia has faced problems conducting operations with other major trading partners including the United Arab Emirates and Turkey amid pressures from the U.S., and trade with India has also faced difficulties because the rupee is not fully convertible.
Following Russia’s invasion of Ukraine, China has become their primary trading partner, especially as the sweeping sanctions imposed by the US and European Union against Moscow ramped up.
Bloomberg noted that “Trade between the two countries surged more than 60% to $240 billion in 2023 since then, with Russia surpassing Germany, Australia and Vietnam on the list of Beijing’s top trading partners,” according to Chinese customs data. “The yuan now accounts for about 40% of Russia’s export and import payments and more than half the value on Russia’s foreign currency market.”
