Will the Cryptoruble Be Russia’s Answer to International Sanctions?

by Joshua Cunningham

The President of Russia, Vladimir Putin, recently commented on his government’s intentions for developing a nationalized ICO. On June 7th, during his annual “Direct Line” (a televised program where Putin answers questions from the Russian public), Putin responded to questions posed by a Russian blogger on the subject of cryptocurrency. The blogger inquired when Russia would produce their cryptocurrency and allow it's used in domestic commerce. The response from Putin was that Russia currently has no plan to create a cryptocurrency. His rationalism for his statement was that a centralized state, like Russia, could not use a decentralized currency—meaning, that Russia will not use a coinage it cannot control. Putin added that there are no current plans to develop a governmental fiat crypto coin. Russia is relaxed with its regulation of cryptocurrency mining and trade—this does not mean that the Russian government is not observing it closely. Currently, the Central Bank of the Russian Federation refuses to accept any cryptocurrency as a form of payment, nor granting it any value in exchange.

Russia’s Experimental Fiat Cryptocurrency

In January 2018, the economic advisor for Putin’s government announced that a cryptocurrency would allow Russia to circumvent any sanctions that disqualify Russia from international financial aid. However, Russia begins to run into a similar issue that Venezuela is facing: fiat crypto coins do not circumvent international sanctions. However, there have been movements within the Russian government that will set the stage for a state ICO. The Bitruble/Cryptoruble has been circulating as a concept in Russia since 2015. Currently, there is a proto-cryptocurrency for Russia scheduled to release into circulation in 2019. Recently, there was a new draft bill submitted to the State Duma—the Russian lower house for the Federal Assembly of Russia. The new draft, entitled “Digital Financial Assets,” set the stage for the future of cryptocurrency and fiat coins in Russia. The bill provides the outline and foundational infrastructure—such as defining terms and outlining exchange policy—for a potential Russian fiat coin. Essentially, the bill will allow digital assets, such as bitcoins, to become “assets” which will allow individuals to purchase goods and pay for services—though it will not be legal tender.

The draft will include a definition for “digital signature” and “digital transaction” along with outlining a foundational legal framework for digital mining and digital transactions. Additionally, the draft gives a legal procedural framework for Initial coin offerings—specifically, allowing cryptocurrency startups and entrepreneurs to sell off future earnings to investors. Alexei Maiseev, Russia’s deputy finance minister, explained that the future of the draft bill is contingent on the Bank of Russia. The Central bank of Russia will need to decide if they will honor the value and allow trading of cryptocurrency. In 2014, the Russian Central Bank titled Bitcoin as a medium to launder money—they took a generally negative stance towards all cryptocurrency.

The CryptoRuble in Review

Russia is not breaking any new ground with their plans for creating a digital coinage. Russia is following Venezuela and other countries who are trying to take advantage of the frenzy surrounding Bitcoin and other cryptocurrencies. Similar to Venezuela, Russia has international sanctions that are limiting its access to foreign financing and trade. While Putin has publicly warned the Russian public about the dangers of Bitcoin, his government is setting the foundation for establishing a fiat cryptocurrency. The problem that Russia needs to solve is that a centralized fiat currency is subject to any sanctions placed against the country. This problem means that anyone from those countries who sanctioned Russia will face legal consequences if they invest in the cryptoruble. Arsenry Sheltsin, the head of the Russian Association Cryptocurrency and Blockchain, announced that they will submit the full cryptocurrency bill to the Duma in July 2018. The bill that the RACIB wants to present needs to take into account the legality of fiat currency with international sanctions. For now, Russia is investing heavily, around 125 million, into a massive crypto-mining startup in Norway.