In what seems like a soap opera at this point, Russian regulators continue to flip flop over their stance on cryptocurrencies. This week, a legal executive from the Bank of Russia stated that an amended version of the On Digital Financial Assets bill would make trading cryptocurrency and issuance illegal in the country. The news showcases high-levels of disorganization within Russia's regulators, as well as, a change in priorities for the country following the Corona Virus outbreak.
On Digital Financial Assets
News of the changes to the crypto legislation first emerged in a March 16 interview with the head of the legal department at Russia’s central bank, Alexey Guznov. The original bill has seen multiple revisions since its introduction in January 2018. Importantly, the original version of the bill allowed cryptocurrency trading amongst citizens.
Now, the amended bill would prohibit everything related to crypto with the exception of actually holding it. Specifically, the issuance and circulation of cryptocurrency would become an illegal activity under the new legislation. Notably, Guzman was silent on what possible penalties a trader may face if they violate the legislation. He also created a moment of added confusion when he acknowledged the difficulties of regulating global cryptomarkets. Specifically, he admitted that Russia would have little recourse if someone “completes a transaction in a jurisdiction that does not prohibit” crypto trading.
Discussing the changes, Guznov stated that the legislation would first ban Russian financial institutions from issuing digital assets. When questioned why the country now seeks to ban crypto, he explained that the “legalization of the issuance and facilitating the circulation of cryptocurrencies” poses a great risk to the stability of the country's financial systems and protections.
Internal Battles – On Digital Financial Assets
This latest version of the On Digital Financial Assets bill reveals much about the internal battle currently underway between Russia's regulators. For example, Russia’s Ministry of Finance has been trying to legalize cryptocurrencies for years now. Unfortunately, it's been an uphill battle because the nation's central bankers want nothing to do with cryptocurrencies. Well, almost nothing.
In what could be one of the most hypocritical maneuvers ever. Russia's central bank continues to develop its own centralized cryptocurrency – the Digital Ruble. Importantly, this digital currency was commissioned by Russian President Vladimir Putin back in October 2017. At the time, analysts speculated that one of the main reasons for Putin's interest in blockchain is that transactions can be encrypted. Consequently, it could help Russia skirt sanctions placed on the country by the international community.
Russia – What is Going On?
This latest development adds fuel to the confusion surrounding Russia's crypto stance. It seems as if it would be difficult, if not impossible, to regulate crypto trading within the country due to the decentralized nature of the technology. However, Russian regulators could leverage harsh fines and jail time to stifle crypto activities. This maneuver would echo that of their neighbor China, who banned cryptocurrency activities in January 2017. However, the main difference is that the People's Bank of China (PBOC) prohibiting financial institutions from handling bitcoin transactions back in December 2013.
The Battle Continues – On Digital Financial Assets
At this point, it's hard to believe that anyone can predict what exactly the On Digital Financial Assets bill will contain. Hopefully, Russian regulators can come to an agreement that doesn't crush the Russian crypto sector. For now, Russian traders await clarification.