The Central Bank of Russia published a consultation paper Thursday proposing a stricter ban on the use and mining of cryptocurrencies within its territory.
The paper, titled ‘Cryptocurrencies: Trends, Risks, and Regulation’ notes the global market for cryptocurrencies skyrocketed in 2021 to $2.3 trillion. The anonymity offered by crypto platforms enables their use in illegal activities such as money laundering, terrorist financing, extortion, bribery and the drug trade.
Further, the paper states, cryptocurrencies threaten national financial stability since they are based on speculation and characterized by high risk and volatility. This threat looms larger over emerging market economies like Russia, whose citizens exchange up to $5 billion in cryptocurrencies each year, since it has limited financial literacy and a greater likelihood of currency substitution (where foreign currencies come to be used in place of the national legal tender). The paper also takes note of measures taken or planned by China, India and Iran to ban the use or mining of cryptocurrencies, as well as the wary response by G7 countries to Facebook’s cryptocurrency Libra in late 2020.
In this background, the paper suggests widening the existing restriction on cryptocurrencies—which bans their use in payments—to impose legal liability on users and prohibit dedicated crypto exchanges, peer-to-peer (P2P) platforms and other financial organizations from issuing or circulating them. The bank also proposes a ban on crypto mining, terming the electricity required by it as a ‘threat’ to the regular power supply. It suggests the monitoring of transactions by Russian citizens on foreign crypto exchanges and the use of alternatives like the planned ‘digital ruble’, a central bank digital currency (CBDC).
At present, Russians may own cryptocurrencies but are required to declare them to tax authorities, along with details of purchase. While the Central Bank has previously expressed concerns about cryptocurrencies, President Vladimir Putin stated in 2021 interview cryptocurrencies had “the right to exist”.
The paper invites comments and suggestions until March 1.