Russia set to toe China’s Line on Crypto Mining, Transactions
Russia may be on the verge of following in China’s step to ban all crypto-related activities including trading and mining within its borders, according to a new consultation paper by the country’s apex bank. Like the People’s Bank of China in 2021, the Central Bank of Russia says it is proposing some amendments to the country’s legislation that could see a ban imposed on using cryptocurrencies “as a mean of payment for goods, works and services sold and bought by Russian residents, whether legal entities or individuals.”
The prohibition, which Russia says is to prevent threats to its financial stability, citizens’ well-being and its monetary policy sovereignty, could also extend to cryptocurrency exchanges as well as financial institutions, the paper indicates. The absence of a single global approach to cryptocurrency regulation, their transactions in many countries being ‘in the ‘grey’ area’ while there is a general trend towards regulation tightening like the prohibition of their use and mining particularly in China stand out as some of the factors that necessitated the proposal.
“The growth of cryptocurrencies’ use creates threats for Russian retail investors, financial stability and threats associated with the use of cryptocurrencies for illicit activities,” the paper states.
Russia’s mining industry on edge
Russian citizens are estimated to transact up to $5 billion per year in cryptocurrencies making them some of the most active users of online cryptocurrency trading platforms. Aside from that, like China used to be, the paper also made reference to Russia’s being one of the leading countries for crypto mining. It says mining is hurting the country’s green agenda and its energy supply.
Russia’s share of the crypto mining market grew after the Chinese government banned similar activities at home last year. The Block’s 2022 Digital Asset Outlook Report points out that the ban created an opportunity for Bitcoin mining operations and an infrastructure boom in places like Russia among others.
Russia’s share stood at 11% (up from 6.8%) as at the end of August 2021 following the Chinese government crackdown, according to data from the Cambridge Bitcoin Electricity Consumption Index at the Cambridge Centre for Alternative Finance. Russia grew to remain the third major mining market as the leading share of the global Bitcoin network hashrate moved to the US followed by Kazakhstan with 18.1% (up from 8.2%).
Meanwhile, unlike the case with China, Russia’s release of a proposal to ban cryptocurrencies did not seem to have an adverse effect on the price action of Bitcoin. Rather than a bearish impact on the crypto market, the top cryptocurrency by market cap climbed slightly.
Russia and China already on SWIFT alternative
Another developing area where Russia recently cooperated with China that could stretch into the future is their working together on an independent trade network for both countries to share a common objective of relying less on the U.S.-led international financial system, SWIFT, for trades.
Russian counterpart Vladimir Putin and Chinese President Xi Jinping in a video call reportedly noted the need to accelerate “efforts on the formation of independent financial infrastructure for servicing trading operations between Russia and China” without third countries’ influence.
The announced alternative would likely serve China first as the public roll out of its much-awaited digital yuan is near with a possibility of cross-border usage. Russia would follow later even though its digital currency plan is still under development.