Conflicts rise between the Russian government and the Russian Central Bank on Regulating Crypto Currencies

  • According to the Finance Ministry, cryptocurrency could attract foreign investment.
  • Despite central bank concerns, the government supports legal trading.

The Russian government is pushing for the legalization of cryptocurrencies, ostensibly to attract foreign investment, despite the central bank’s warning that they could be used for illegal activity.

Legalizing cryptocurrency would eliminate grey economy operations and help the government monitor the industry, according to Finance Minister Anton Siluanov.

Later, the government published an outline of how to regulate the market, allowing domestic trading to emerge from the shadows.

“We need to create clear and transparent rules for citizens and businesses to participate in the financial instruments of the crypto market,” said Deputy Finance Minister Alexey Moiseev in a statement to journalists Monday. “Clear regulation precludes the emergence of a parallel financial system.”

The central bank is opposed to the plan, claiming that cryptocurrency resembles a pyramid scheme and could be used for illegal financial transactions. The regulator has recommended that its mining and use be prohibited.

“The approaches proposed by the government do not yet allow for the neutralization of the risks that we see, while simultaneously creating new threats,” Bank of Russia Governor Elvira Nabiullina said at a press conference Friday. “There are significant risks here, and I hope that common sense prevails.”

In January, President Vladimir Putin urged the authorities to reach an agreement.

According to Siluanov’s letter, allowing trade would likely result in an influx of foreign investors seeking to acquire crypto mined in Russia. Currently, he wrote, the lack of a regulatory framework or clear taxation rules means that business is conducted abroad.

According to Cambridge University data released in October, Russia became the world’s third largest crypto miner last year, trailing only the United States and Kazakhstan.

Since the Kremlin annexed Crimea from Ukraine in 2014, which triggered Western sanctions, Russia has seen a drop in foreign investment. In 2020, foreign direct investment will be at its lowest level since 2003.

The push to codify rules governing Russia’s burgeoning crypto scene comes as the United States and the European Union prepare harsh potential sanctions in the event of a Ukrainian invasion. The Kremlin has denied any intention of attacking its neighbor and has demanded security guarantees from the West in order to de-escalate the crisis.

Russia’s existing laws recognize crypto assets but do not allow them to be used as payment, clouding understanding of the domestic market’s size. Russian crypto holdings are estimated to be worth between 2 trillion rubles and 16.5 trillion rubles ($27 billion to $220 billion) by officials.

According to Andrey Mikhailishin, CEO of the Moscow-based Joys payment service that allows users to pay with digital currencies, legalizing cryptocurrency could help Russia’s investment case, which is suffering from a lack of venture capital due to the conflict with the West.

“The political agenda has had virtually no effect on the crypto market,” Mikhailishin said, adding that transparent regulation could attract $3.5 billion in investment by 2022. “Today, investing in cryptocurrencies is one of the most accessible and largest venture capital markets for Russian IT projects.”

 

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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