Following In China's Footsteps, Russia's Central Bank Proposes A Complete Ban On Cryptocurrencies

The Russian Central Bank considers crypto to disrupt the country's national financial stability. (photo: doc. unsplash)

JAKARTA – After China banned crypto and bitcoin mining, last year, now the ban has spread to Russia. The Russian central bank on Thursday, January 19, proposed banning the use and mining of cryptocurrencies on their territory. They argue that cryptocurrencies are a threat to financial stability, citizens' welfare, and sovereignty in monetary policy.

The move is the latest in a crackdown on global cryptocurrencies as governments from Asia to the United States are concerned that privately operated and highly volatile digital currencies could undermine their control over financial and monetary systems.

Russia has debated for years against cryptocurrency users, arguing that cryptocurrencies can be used to launder money or to finance terrorism. The debate finally gave them legal status in 2020 but banned their use as a means of payment.

In a report published last Thursday, Russia's central bank said speculative demand is primarily in determining the rapid growth of cryptocurrencies and that they carry the characteristics of financial pyramids, warn of potential bubbles in the market, and threaten financial stability as well as citizens.

The bank proposes to prevent financial institutions from carrying out any operations with cryptocurrencies and such mechanisms should be developed to block transactions aimed at buying or selling cryptocurrencies for fiat currencies.

The proposed ban includes crypto exchanges themselves. Cryptocurrency exchange Binance told Reuters it was committed to working with regulators and hoped the release of the report would spawn dialogue with the central bank to protect the interests of crypto users in Russia.

"Restrictions on owning cryptocurrencies were not considered," said Elizaveta Danilova, head of the Russian Central Bank's Financial Stability Department, cited from Reuters.

According to the Central Bank of Russia, active crypto users, Russia currently has an annual transaction volume of about 5 billion US dollars.

The central bank also said it would work with regulators in countries where crypto exchanges have registered to gather information about the operations of Russian clients. It points to steps being taken in other countries, such as China, to curb cryptocurrency activity.

Last September, China intensified its crackdown on cryptocurrencies with a complete ban on all crypto transactions and mining. The decision has hit bitcoin and other major coins and pressured crypto and blockchain-related stocks.

“For now there are no plans to ban cryptocurrencies similar to the experience in China,” said Danilova. "Our proposed approach is sufficient."

Joseph Edwards, chief financial strategist at crypto firm Solrise Group, played down the significance of the report, saying no one outside of Russia would be unable to sleep because of the policy.

“Moscow, like Beijing, is always raving about the “crypto ban”, but Russia has never been a pillar of every aspect of the industry in the same way that China has at times been,” he said.

Russia itself is the world's third-largest player in bitcoin mining, behind the United States and Kazakhstan. But now there is an exodus of miners in Kazakhstan due to fears of tightening regulations following unrest in the country earlier this month.

The Bank of Russia says crypto-mining itself has created a major problem in energy consumption. Bitcoin and other cryptocurrencies are "mined" by sophisticated computers that compete with other computers connected to a global network to solve complex mathematical puzzles. The process consumes electricity and is often powered by fossil fuels.

“The best solution would be to introduce a ban on cryptocurrency mining in Russia,” the bank said. In August, Russia accounted for 11.2% of the global "hashrate" - crypto jargon for the amount of computing power used by computers connected to the bitcoin network.

Moscow-based BitRiver, which operates a data center in Siberia that hosts bitcoin miners, said it was not considering the possibility of a complete crypto ban. They expect a balanced position to develop once the different ministries have discussed the proposal.

The central bank, which plans to issue its own digital currency, said that widespread crypto assets would limit the sovereignty of monetary policy, with higher interest rates needed to contain inflation.