Recently, news surfaced on the internet claiming that the Central Bank of Russia, commonly known as CBR, is looking for ways to incorporate digital assets and Blockchain technology into its digital financial system. The reports surfaced after the CBR published a report called ‘Digital Assets in Russian Federation’ for public retrospection on the 7th of November 2022.
This certainly surprised many in the industry, given the Russian authorities have long been reluctant to encourage the use of cryptos. Many news reports a while back suggested that Russia might opt for a crypto ban like China. But the recent report on telegram changed that only to leave people more confused about Russia’s next move.
So What Is This Report All About?
The report titled ‘Digital Assets in Russian Federation’ looks at many aspects of the crypto economy, seeking recommendations and comments from the general public. It was brought forward before the public through a Telegram post.
But most importantly, it is about assessing if the sanctioned state might grant access to its domestic market to foreign digital issuers. But the term foreign here is somewhat relative as the access is only limited to countries that Russia deems friendly.
Furthermore, the report dives into various aspects that include the following:
- Recommendations for reforms in taxation and accounting
- Better regulation for digital assets
- Safeguarding the interest of smaller investors like individuals
- Digital property rights associated with smart contracts and tokenization
Does The Central Bank Of Russia Now Support Digital Assets?
The Central Bank of Russia (CBR) made it very clear that it supports and encourages the development of further digital technologies. However, they also made it clear this support will remain unfettered as long as it does not expose customers or users to uncontrollable and hazardous factors associated with cyber security and finance.
They added that digital assets must adhere to the same regulatory guidelines that apply to the issuance and circulation of conventional financial instruments. Furthermore, the CBR has acknowledged that Blockchain technology is still in its infancy.
Barring the report, Russian politicians have had more murmurs about digital assets. One of the well-known politicians from Russia recently highlighted that the legislation aims to allow people to mint cryptocurrencies in Russia.
The proposed law further goes on to specify that the minted tokens must be circulated outside of Russian territory. But there is also a mention of a subsequent bill that allows the use in other experimental regimes.
In another statement from Anatoly Aksakov, the Head of the Financial Market Committee of the State Duma, he clarified the primary objectives of the legislation. He stated that the objective of the latest legislative proposal is to allow people to mint all sorts of cryptocurrencies.
CBR Looks For A New Start
The CBR further affirmed its belief that short regulations must come in place for a number of different purposes. These purposes include tightening up the requirements to put circulating digital assets, safeguarding the rights and interests of investors, ensuring the issuer is accredited, and, lastly, ensuring the issuer discloses all pertinent information to investors.
Adding to it, the Central Bank also confirmed that while the legal foundation for digital assets is in place, there remains a need for better regulation to stimulate the industry’s growth in the near and far future.
The statement read, “Russia has created the legal framework for issuing and circulating digital assets […] But so far, the market is at the initial stage of its development […] and is many times inferior to the market of traditional financial instruments. Its further development requires improved regulation.”
According to the CBR, a legal framework is already in place to facilitate better regulation of smart contracts. However, they added that any smart contract developed in Russia might be subject to an independent audit before making it available to the masses.
The CBR also seemed positive about the potential of tokenized off-chain assets. However, the bank further clarified that they would require legislation facilitating a legal connection between the token and the token owner.
What Brought Forward This Entire Change?
There needs to be a formal explanation from the Russian authorities about what triggered them to come up with this legislation.
But it is worth noting that this development comes after the Russian Ministry of Finance approved that all Russian citizens could now use cryptocurrencies for cross-border payments. This announcement was made on the 22nd of September 2022, further clarifying that Russians have been considering it.
But surprisingly, there is no mention of the financial implications brought forward by Russia’s invasion of Ukraine. It is no secret that the Russian economy is now operating under a lot of sanctions imposed by the West following the war.
It is worth noting that another document states this comes as another effort to focus their efforts on the digital ruble. The digital ruble is intended to be tested as early as 2023, which might be Russia’s next central bank digital currency (CBDC).
The CBR also announced in August 2022 that all Russian banks will receive the digitized ruble in 2024.
Is There Anything Worrisome Going On Here?
Of course, it will not be fair to claim that this move of the Russian authorities should be the reason for raising an eyebrow. But one cannot help but notice the report made no mention of anything that focuses on money laundering practices. There still needs to be any such discussion about implementing policies to prevent such activities.
This is an essential concern since money laundering with digital currencies has been a pressing concern for lawmakers around the globe. A report from the United States Department of Justice (DOJ) accused five Russian nationals and two Venezuelan nationals of using cryptos to launder money for Russian oligarchs by selling oil barrels. So this is something worth noting in the coming days.