The initiative of the Central Bank of the Russian Federation to ban cryptocurrencies in Russia has been discussed for the second week, the Ministry of Finance is against it.
Even before the publication of the report of the Central Bank on the ban on cryptocurrencies, Bloomberg reported that the FSB initiated the ban. The intelligence service is allegedly concerned about the growth of anonymous funding of the Russian opposition. However, the ban may not last long – a positive example of other countries may force Russia to reconsider its attitude.
Low financial literacy is one of the reasons for a possible ban
The report, which the Bank of Russia published on January 20, lists a number of threats that cryptocurrencies carry with them. The authors point out that cryptocurrencies are “massively used to make payments as part of criminal activities.” Due to their anonymous nature, they are involved in money laundering, drug trafficking and financing of terrorism, Central Bank experts warn.
In addition, the Central Bank attributed the high volatility of the exchange rate and the prevalence of fraud in cryptocurrency trading to risks. In countries such as Russia, with an “insufficient level of financial literacy” of the population, this carries “potential risks to financial stability.” In the end, cryptocurrency mining endangers the energy supply of buildings and simply interferes with the implementation of the environmental agenda of the Russian Federation, the Central Bank concludes.
The Central Bank sees the best solution to these problems as a ban on the mining of cryptocurrencies and their circulation on the territory of the Russian Federation. For the use of cryptocurrencies as a means of payment, experts of the department propose to establish liability. Crypto exchanges and crypto exchangers should also be banned. Financial institutions will lose the opportunity to invest in cryptocurrencies.
Paternalism and competition with the digital ruble
Central Bank experts stick to the figure of $5 billion when they estimate the volume of transactions of Russian citizens with cryptocurrencies. However, it is impossible to calculate the exact figure, warns Yulia Vymyatnina, Dean of the Faculty of Economics at the European University and cryptocurrency researcher. According to her observations, Russians mainly use cryptocurrencies as financial assets.
The proposal of the Central Bank shows a paternalistic position, which has been voiced more than once on other issues, Vymyatnina believes. For example, in December, the Central Bank proposed to limit the sale of complex financial products to unqualified investors. “Our Central Bank has an intolerant attitude towards everything that they would call a “money surrogate,” the researcher explains. “Plus, our Central Bank quite rightly notes that investing in cryptocurrencies is a very speculative story. It is possible that not everyone who invests money in it aware of what is going on.”
Yulia Vymyatnina sees the Central Bank’s work on its own digital ruble as another reason for the Central Bank’s ban. Cryptocurrencies can be considered by officials as a competitor to their offspring. “It is important that we do not just make a digital ruble, but that it be accepted and used,” she explains the bank’s possible logic. what is unofficial is bad.”
Debate over implications for high-tech businesses
Pavel Durov, the founder of Vkontakte and Telegram, criticized the proposals of the Central Bank. He warned the Russian authorities against banning cryptocurrencies, as this could lead to an outflow of IT specialists from the country and the destruction of a number of sectors of the high-tech economy. In addition, it will hinder the development of blockchain technologies, which “increase the efficiency and safety of many types of human activity – from finance to art.”
Dmitry Zavalishin, the founder of Yandex.Market and the CEO of DZ Systems Group, argued with Durov in absentia in a commentary to DW. According to him, the ban on cryptocurrencies will not significantly affect high-tech businesses. “I don’t know of any business (other than the business that powers the actual cryptocurrencies) that would really depend on this technology,” he says. “I will emphasize that blockchain as a technology is not at all the same as cryptocurrencies, and no one is going to ban blockchain.”
Sergei Ivanov, director of product strategy at T1 Group, agrees with him. “The measures taken will not have a significant impact on high-tech businesses, since in none of the developed economies cryptocurrencies are a means of payment and an analogue of fiat money,” Ivanov is sure. He adds that Russia is moving in line with the global trend.
At the same time, Dmitry Zavalishin sharply criticizes cryptocurrencies. He notes that the word “currency” in their name is a lie. In fact, it is supposedly a speculative asset that is used for drug trafficking and other illegal operations. The creator of Yandex.Market also draws attention to the fact that cryptocurrency mining is harmful to the environment, as it is “burning energy for nothing.”
Will Russian owners of cryptocurrencies change jurisdiction?
“The Central Bank of Russia does not limit the ownership of cryptocurrency, but only the conduct of operations and only for individuals,” Ivanov interprets the proposals of the Central Bank. “The same practice is adopted in Canada, China, Norway and other countries.” According to him, the Central Bank of the Russian Federation does not plan to introduce new restrictions for companies, since their activities are already “regulated by a number of industry regulations that allow controlling the sources of income and the result of operations.”
Yulia Vymyatnina of the European University believes the ban will have several major implications. First, in some regions, electricity consumption may be significantly reduced. In Russia, they began to mine cryptocurrency more often after the ban on mining in neighboring China. In addition, even at the stage of discussing the fate of cryptocurrencies in Russia, their Russian owners will look for opportunities to move to other, more loyal jurisdictions.
Vymyatnina is sure that even if the circulation of cryptocurrencies is banned now, over time this decision will be canceled with an eye to the experience of other countries. This is due to the fact that “cryptocurrencies will not die, but, on the contrary, will develop and be modified in the world,” the economist believes.
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