In what should come as no surprise, recent comments made by Vladimir Putin and other ministers with respect to cryptocurrencies have been taken completely out of context and belie the reality as to Russia’s real intentions with respect to virtual currencies.
Russia’s Central Bank First Deputy Governor Sergei Shvetsov told a recent conference in Moscow that the currencies were dubious and investors needed to be protected, amid calls to block websites selling bitcoin and other currencies. Shvetsov went further by stating that Russia can’t stand apart and give direct and easy access to such dubious instruments for retail investors.
One the same day, Putin stated in Sochi that the usage of crypto-currencies carried serious risks and are issued by an unlimited number of anonymous bodies and therefore buyers of crypto-currencies could be involved in unlawful activities.
Initially, Russian financial authorities regarded money issued by non-state approved institutions as illegal and could be used to launder money. However, given that the Russian Finance Minister Anton Siluanov stated last month that the authorities had to accept that virtual currencies existed and that there was no sense in banning them but a need to regulate them, it was believed that Russia’s stance towards cryptocurrencies had changed. In addition the Finance Ministry was also working on a law including registration of those willing to buy virtual currencies.
However, the aforementioned comments by Shvetsov appeared to suggest that Russia was now backing away from the cryptocurrency arena. Afterall Shvetsov also acknowledged that the Russian central bank saw rising interest in cryptocurrencies because of the high returns to date but that they had transformed into high-yielding assets from being a method of payment. He also stated that his department believed that for both Russian citizens and businesses alike, the usage of such cryptocurrencies as an investment carried unreasonably high risks.
However when we analyse the comments made by Putin in Sochi, the reality of Russia’s position on cryptocurrencies becomes very different.
Putin acknowledged that cryptocurrencies were becoming more popular and turning into a full-fledged payment instrument and an investment asset in certain countries. However he also stated that they carry serious risks in that they can be potentially used for laundering criminal proceeds, evading taxes, for financing terrorism as well as potential fraudulent schemes whereby citizens may become victims. There is no doubt that these assertions, in some context at least, are perfectly reasonable but it was the next statements which clearly laid out Russia’s future position on cryptocurrencies.
The fact that Putin stated that the circulation of cryptocurrencies should proceed in Russia taking advantage of new technology solutions in the banking sphere whilst avoiding the creation of unnecessary barriers to inhibit further growth and the improvement of the national financial system, spoke volumes.
Putin also asserted that there was a need to develop a regulatory system on the basis of international agreements that would protect the interests of the people, businesses and the government. In addition there should be the provision of legal guarantees for work within the scope of innovative financial instruments.
Whilst many will disagree with Putin’s assertions about the need for an international regulatory system to be implemented for cryptocurrencies and Russia’s intention to outlaw exchanges, this does not mean that Russia is averse to cryptocurrencies. The reality is that this could not be further from the truth as Russia is already developing its own asset-backed cryptocurrency and remains committed to its future adoption on the international stage.
The fact that Moscow is so risk averse to current cryptocurrencies and platforms is something which should not be dismissed so lightly and regarded as a typical knee-jerk government reaction to something which is decentralised. There is no doubt that cryptocurrencies and blockchain have a very bright future as Russia acknowledges and seeks to take advantage of what might be termed the second generation of virtual currencies.