Russia Sees Drop in Cross-Border Payments Using Dollars, Euros... Will it Switch to Crypto?

Around half of Russian cross-border payments are now being made in currencies other than the dollar and euro, up from 21% at the start of the year, the central bank said on Thursday, as Russia tries to wean itself off currencies of so-called unfriendly nations.

Russia is seeking to reduce transactions with what it terms "toxic" currencies - those of countries that have imposed sanctions against Russia, in particular the dollar and euro - and use of China's yuan has increased dramatically since Feb. 24, when Russia sent thousands of troops into Ukraine.

While the yuan has been making gradual inroads in Russia for years, its progress has accelerated sharply in the past nine months, according to a Reuters review of data and interviews with 10 business and finance players.

"The challenge for Russian banks is the limited scope of opportunities in interest-bearing yuan investments," the central bank said in a report on financial stability.

"It is also important that the transition to the yuan is balanced, addressing both exports and imports, as well as payments for capital transactions."

The central bank said sanctions, which include several major Russian banks being cut off from the SWIFT international payments system, were primarily limiting banks' ability to carry out certain transactions.

"While a considerable portion of export and import payments remain in dollars and euros, these payments are significantly hampered by the fact that a large percentage of banks are under sanctions and cannot carry out such operations," the bank said in the report.

Russia is seeking to reduce transactions with what it terms "toxic" currencies - those of countries that have imposed sanctions against Russia, in particular the dollar and euro - and use of China's yuan has increased dramatically since Feb. 24, when Russia sent thousands of troops into Ukraine.

"The challenge for Russian banks is the limited scope of opportunities in interest-bearing yuan investments," the central bank said in a report on financial stability.

"It is also important that the transition to the yuan is balanced, addressing both exports and imports, as well as payments for capital transactions."

Russia switching to crypto

With this in mind, it is important to note that Russia’s central bank has revealed that the country could re-consider using crypto for international payments, local news agency TASS reported on Sept. 5.

According to the report, Russia’s Deputy Finance Minister Alexei Moiseev said the apex bank and the finance ministry could legalize crypto payments soon.

Moiseev continued that Russians’ reliance on foreign platforms for crypto transactions further emphasizes the need to legalize the industry locally.

Moiseev commented, “Now people open crypto wallets outside the Russian Federation. It is necessary that this can be done in Russia, that this is done by entities supervised by the Central Bank, which are required to comply with the requirements of anti-money laundering legislation, and first of all, of course, to know their client.”

As previously mentioned, Russia has faced increased scrutiny and sanctions from western countries over its Ukraine invasion.

The sanctions birthed talks of the possibility of Russia using crypto to evade these sanctions, but stakeholders in the crypto industry have insisted that this is not possible.

In addition to that, under new rules brought in amid concerns that bitcoin and other crypto assets are being used to dodge restrictions imposed in response to Russia’s invasion of Ukraine, crypto exchanges must now report suspected sanction breaches to UK authorities, a new step that puts even more pressure on Russia.

Russia’s posture towards crypto remains unclear, however, the Bank of Russia continues working towards the upcoming adoption of the central bank digital currency (CBDC), planning an official digital ruble rollout in a few years.

The central bank expects to complete “real money” customer-to-customer transaction trials as well as the testing of customer-to-business and business-to-customer settlements.

In 2023, the Bank of Russia also intends to conduct beta testing of digital ruble-based smart contracts for trades by a limited circle of participants.

As mentioned previously on UNLOCK Blockchain, Russia has been diving into the blockchain and crypto space bit by bit; the country started its first digital ruble trials in February 2022, following its official CBDC roadmap released last year.

The Bank of Russia previously formed a group of twelve banks to test the digital ruble, including major banking giants like Sber, VTB, Tinkoff Bank and others.

This being said, it is clear that Russia wants to be part of the blockchain and crypto world, as it will help it in so many ways. Nevertheless, it is being cautious, for it is in a critical war situation that could break it once and for all.