Russia contemplating permanently legalizing stablecoins for cross-border payments

The Russian government is contemplating the official legalization of stablecoins for international transactions to simplify cross-border payments for Russian companies amid ongoing sanctions, Izvestia reported on July 3, citing the Russian central bank.

According to the report, the Central Bank of the Russia Federation (CBR) is actively discussing proposals to permit the use of these crypto-assets, which are pegged to stable currencies or assets like the US dollar or gold, making them less volatile than other cryptocurrencies.

Stablecoins could be solution to sanctions

CBR Deputy Chairman Alexey Guznov confirmed the initiative, highlighting that the primary focus is on regulating the entire transaction chain, from transferring these assets into Russia to accumulating and utilizing them for cross-border payments.

Guznov indicated that this might be established as a permanent regulation rather than a temporary experiment. He pointed out that while stablecoins share similarities with both digital financial assets (DFAs) and cryptocurrencies, fine-tuning the regulatory framework will be essential due to their unique characteristics and widespread popularity.

According to the report, stablecoins are considered a promising tool for international settlements, especially for transactions with BRICS countries — which include Brazil, Russia, India, China, and South Africa.

Experts believe that these assets can provide significant liquidity and long-term resources for the market. The Russian Union of Industrialists and Entrepreneurs (RSPP) views stablecoins as a vital instrument for enhancing cross-border transactions in the face of Western sanctions.

In March 2024, Russian President Vladimir Putin signed a law allowing the use of DFAs for international payments. However, this process has not yet been fully implemented due to concerns over secondary sanctions from foreign companies.

Additionally, Russian DFAs are currently not compatible with the global crypto market, limiting their use for international payments due to issues of convertibility and liquidity.

Limited use in Russia

Stablecoins are already a popular tool for global transactions. In the first quarter of 2024 alone, the total value of stablecoin transactions reached $6.8 trillion, nearly matching the entire volume for 2022. However, in Russia, their use is currently limited to individual company initiatives, with firms mostly utilizing them for transactions with China.

Experts emphasize the need for clear regulatory frameworks and robust infrastructure to support stablecoin transactions. This includes defining the “rules of the game” for the crypto and mining industries to facilitate legal and transparent operations.

If stablecoin payments are legalized, they could become widely available to Russian businesses, including state companies, making the process of conducting such transactions more straightforward and tax-compliant.

The latest round of EU sanctions in June prohibited European organizations from connecting to Russia’s alternative to SWIFT, the Financial Message Transfer System (SPFS). This, along with Russia’s disconnection from SWIFT in 2022, has increased the importance of developing alternative payment mechanisms.

Stablecoins, which can bypass traditional systems like SWIFT, offer a potential solution to these challenges.