The Central Bank of Russia (CBR) issued a report on January 20 summarizing its position on digital assets and proposing a ban on any cryptocurrency trading and mining in the country. Although the CBR’s strict stance on the matter has never been a secret, such a bold statement has sparked waves of fear, uncertainty and doubt – otherwise known as the FUD – in all areas, given the high level of Russian involvement in the global digital market.
Nevertheless, there are reasons to doubt the ultimate effectiveness of the CBR’s hard offer, both in terms of its enforceability and in terms of its acceptance by other centers of power, including legislators and security forces (securocrats). The picture is even more complicated for the central bank, as a senior official at another important center of economic policy, the finance ministry, called for regulation rather than a ban on cryptocurrencies earlier this week. What are the chances that a hard approach will prevail?
What does the CBR intend to ban?
Using a variety of standard cryptophobic arguments, such as comparing digital assets with the Ponzi scheme, the central bank’s report “Cryptocurrencies: Trends, Risks, Measures” calls for a total domestic ban on trading tables and cryptocurrency exchanges. in addition to mining. The emphasis is mainly on the use of old financial infrastructure: the CBR addresses its document to private banks and institutional investors and discourages them from any involvement in digital assets.
In the current version, the proposed ban would not prohibit the possession of digital assets by individual investors, nor would it prohibit their exchange using international tracks. Nevertheless, the regulator wants to introduce some fiscal transparency and ensure that private investors do not escape the tax burden. Non-replaceable tokens (NFT) would also be likely to remain outside the scope of the ban.
Possible effects on crypto operations
Many domestic stakeholders do not believe in the effectiveness of the proposed restrictions. In an interview with local media, Maksim Malysh, CEO of the Kryptex mining platform, explained that a mining ban is unlikely to cause a market crash, as the largest Russian-owned mining basins operate outside Russian borders and are registered as foreign companies. Exchanges, he argued, would not be difficult to create new mirror sites in case event domains are blocked. According to Malysh, “any blocking would only lead to an increase in the popularity of VPN services.”
Andrey Mihaylishin, co-founder of the crypto payment system Joys, doubts that the measures proposed by the CBR would also stop larger investors – they could simply open accounts with Belarusian or Kazakh banks where cryptocurrencies are legal.
As the report invites the public to contribute, there is hope that industry participants will be able to articulate convincing arguments against the ban. Russia’s largest mining basin, EMCD, plans to send its comments on the report to the central bank and share with the regulator its views on taxation, risk management and further institutionalization of mining. Among the EMCD’s ideas are special energy tariffs for mining companies and tax breaks for those operating in Russia’s economically depressed regions.
In any case, the report is not a legally binding document, unlike the Federal Law on Digital Finance and Digital Currency, adopted in 2020. The language of the law is unclear and, for example, does not mention mining at all, although it still allows “digital funding” to be issued.
Not surprisingly, the vocalist for freedom, Telegram founder Pavel Durov, rejected the proposed ban and noted its destructive potential for “the development of blockchain technologies in general” and “many sectors of the high-tech economy.” . ” Much more unexpected, however, is the response to the CBR report among other government bodies and officials, in contrast to the simplified image of the monolithic Russian state machine.
Andrey Lugovoy, deputy chairman of the National Duma’s National Security and Anti-Corruption Committee – the lower house of the Russian parliament – has publicly warned that it would make more sense to continue working to legalize the industry instead of banning it. Lugovoy, who was also one of the initiators of the working group for the legalization of crypto mining, said:
“When you make such statements – we ‘strictly forbid’ – you should justify your position with concrete, clear, understandable numbers and explain what you will do with people who already have cryptocurrency. […] No one knows why the CBR has such a radical stance. There is only one explanation – high volatility and “This is the Ponzi scheme”. But then what? We can list many examples of something risky that still plays a role in our daily lives. “
In fact, the Duma has had a tense relationship with the central bank for some time. The legislature has been working on the crypto regulatory framework for several years, but these attempts have failed due to the uncompromising position of the banking regulator. The bill, which would clarify the procedures for taxing digital assets, is said to have been blocked due to CBR opposition. Even the Federal Tax Service, which is very interested in the cryptocurrencies of citizens, could not change the situation.
Related: Less likely to be banned? Putin says cryptocurrency mining has advantages in Russia
In its report on the proposed ban, Bloomberg – citing anonymous sources – stressed on the lobbying influence of the Federal Security Service (FSB) as one of the factors driving the CBR initiative. The FSB allegedly worries that cryptocurrencies are being used as a tool to fund the opposition in the country. Leonid Volkov, head of the cabinet of opposition leader Alexei Navalny, confirmed that this case of use is accurate, and expressed his distrust of the ultimate success of the policy.
Bloomberg’s narrative, however, did not remain undisputed. Lugovoy called it a “well-crafted counterfeit that someone is interested in” and said he had never heard FSB representatives offer any views on cryptocurrencies during parliamentary working group meetings. According to the Russian business publication The Bell, CBR was the only entity in the Interagency Working Group on Cryptocurrencies for encourage The “Chinese scenario” for digital asset regulation, and the FSB is against it. At this point, the working group unanimously rejected only two regulatory frameworks: the full legalization of cryptocurrency and the current turmoil.
The Ministry of Finance announced itself
The story took a new turn on January 25, when Ivan Chebeskov, head of the financial policy department at the finance ministry, said the finance ministry’s position was regulation and not a ban on digital assets. He also mentioned that the agency has already prepared its regulatory framework and is currently awaiting feedback from the government. According to Chebeskov:
“The world has virtualized to a high level, technology is advancing fast, and I don’t think we can just take one of the high-tech industries and ban it here and let it evolve elsewhere.”
This was not the first time the Treasury Department had informed the CBR that it had a different opinion on the matter. At a session of the Duma in December 2021, Deputy Finance Minister Alexei Moiseyev suggested restricting cryptocurrency purchases only to unqualified investors. He added that it was “too late” to ban cryptocurrencies, given that more than 10 million Russian citizens have a total of about 5 trillion rubles ($ 63 billion) in cryptocurrencies.
This difference of opinion could further weaken the central bank’s position, which may provide some relief to the industry. With a wide range of opponents in both the legislative and executive branches of government and without the full support of security agencies, the CBR report seems excessive.
Historically, the CBR has enjoyed broad autonomy in making economic decisions under President Vladimir Putin, but has been limited by its specific mission: maintaining the economy by curbing inflation, imposing austerity measures when necessary, and ensuring the stability of the national currency.
The prerogative of issuing bans has always had other entities, be it parliament or government. So if the whole reason for the ban is based solely on CBR’s distrust of the variable asset class and its unwillingness to create a complex arrangement, last week’s report is likely to remain nothing more than a document of one government body’s position on the hot issue. .