The central bank of Russia, the third-biggest crypto mining nation in the world, proposed a blanket ban on the use and creation of all cryptocurrencies domestically.
Cryptocurrencies bear the hallmarks of a pyramid scheme and undermine the sovereignty of monetary policy, posing a threat to the Russian financial system, the central bank said in a report published Thursday.
“Potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia,” the report said. “This is due to the traditionally higher propensity for saving in foreign currency and an insufficient level of financial literacy.”
Mining hurts the country’s green agenda, jeopardizes Russia’s energy supply and amplifies the negative effects of the spread of cryptocurrencies, creating incentives for circumventing attempts at regulation, according to the Bank of Russia.
The central bank’s hard line against crypto dovetails with the position of Russia’s powerful security services, which also back a compete ban domestically to prevent it from being used to fund the country’s opposition, according to two people familiar with the issue.
The Federal Security Service, or FSB, lobbied Governor Elvira Nabiullina for a blanket ban as the hard-to-trace payments are increasingly used by Russians to donate to undesirable organizations, including media resources that have been labeled “foreign agents,” said the people, who asked not to be identified because the information is not public.
Opposition and media funding accounts for an insignificant fraction of the more than 7 trillion rubles ($92 billion) of assets held in about 17 million cryptowallets in Russia, according to the people. Still, the security services are worried that it is a growing problem, they said.
The Bank of Russia has long been skeptical of crypto and hinted at the need for further regulation. In December, Nabiullina said Russian infrastructure shouldn’t be used for trading it.
A spokesperson for the FSB didn’t respond to requests for comment.
Russia is home to a thriving mining industry, which has become an increasingly important center after China labeled crypto-related transactions illicit financial activity and vowed to root out mining of digital assets.
Russia became the world’s third biggest crypto-miner last year, according to Cambridge University data. The largest crypto-mines are located in the country’s north and in Siberia, where the temperatures are low and there is access to cheap power. BitRiver, Minespot and BitCluster are among the biggest companies in the industry.
Russia already bans the use of crypto to make payments, but legislators recognized digital currencies’ existence in a 2020 law as their popularity grew. Unlike in China, the ban would not apply to assets held abroad by Russians and those with offshore bank accounts will be able to trade crypto, the people said.
As the debate over crypto intensifies in Russia, speaker of the lower house of parliament Vyacheslav Volodin said this week that creating a regulatory framework will be a priority in the State Duma’s spring session. Any ban would first need to be passed into law before taking effect.
The push to ban crypto comes amid a far-reaching crackdown on anti-Kremlin opposition and independent media after the arrest of Alexey Navalny a year ago. Russia has also issued large fines to foreign technology companies for failing to remove content as President Vladimir Putin faces off against the West in a European security crisis that could escalate into open conflict.
Navalny’s network of offices, which was banned by Russian authorities as “extremist” last year, continues to accept donations in Bitcoin. A wallet listed on its website has received cryptocurrency worth $4 million over the last five years, according to Blockchair, a blockchain search engine.
Leonid Volkov, Navalny’s chief of staff, didn’t respond to a request for comment.
The Meduza news website also accepts donations in cryptocurrencies. Meduza was labeled a foreign agent in April, which forces it to post a bulky disclaimer on all publications and meet strict financial disclosure rules.
It has received two large crypto-donations and numerous minor ones, according to Meduza’s publisher Galina Timchenko.
“We don’t disclose our figures, but I can say that it represents about 3% of our total donations,” Timchenko said. “In other words, it’s really not much.”
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