The Central Bank of Russia (CBR) issued a consultation paper on Thursday entitled ‘Cryptocurrencies: Trends, Risks, and Regulation’, whose primary focus is to influence Russian authorities to ban both mining and the use of cryptocurrencies such as Bitcoin.
The document issued by the Central Bank of Russia begins by analyzing the size of cryptocurrencies. Examining data from December 2021, the bank cites crypto market capitalization of 2.3 trillion dollars and the volume of transactions by Russians, estimated at 5 billion dollars per year.
Going further, the bank also mentions the growth of the volume of Bitcoin ETFs, available in countries such as the USA, Canada, and Brazil, and the expansion of the decentralized finance (DeFi) sector.
While this may seem like good news for cryptocurrency lovers, the Russian Central Bank does not seem happy with these digits.
The CBR states that the growth of cryptocurrencies is a threat to Russian financial stability. For example, the bank mentions the high volatility of this market and the conversion of the Russian ruble to other digital currencies.
“The growth of cryptocurrencies use creates threats for Russian retail investors and financial stability. High volatility and proliferation of fraud in cryptocurrency trading creates for individuals risk of losing a significant portion of their investments and even of becoming a debtor in case of leveraged trading.”
However, the most important point is the comparison between dollarization and cryptonization. The Central Bank of Russia claims that, in both cases, it makes CBR lose grip over economic power and decisions in its own country.
“Just as dollarization, cryptoization limits monetary policy sovereignty, which might force central bank to permanently maintain a higher key rate in order to contain inflation. This will reduce the affordability of credit to both households and businesses.”
The bank also analyzes that when people hold their savings in crypto, it will badly impact their economic growth.
“The spread of cryptocurrencies could make people withdraw their savings from the Russian financial sector and, subsequently, decrease its capability to finance the real sector and potential economic growth reducing the number of jobs and potential for household income increase.”
Russia wants to ban mining and use of Bitcoin: After presenting its doubts, the Central Bank of Russia then states that it is necessary to ban mining and the use of cryptocurrencies such as Bitcoin as a payment method; as an example, the CBR cites China.
The three proposals from CBI are below; the first one aims to prohibit the use of cryptocurrencies as payments, the second is related to mining, and the last is related to financial institutions’ investments in digital assets.
- “Establish liability for the violation of the statutory ban on using cryptocurrencies as a means of payment for goods, works and services sold and bought by Russian residents, whether legal entities or individuals. Prohibit the organization of the issue and/or the issue and the organization of the circulation of cryptocurrencies (including by cryptocurrency exchanges, cryptocurrency exchange offices, and P2P platforms) on the territory of the Russian Federation and establish liability for breaching this ban.
- Cryptocurrency mining should be banned as it creates unproductive consumption of electric power, which threatens the power supply of residential buildings, social infrastructure, and enterprises and the Implementation of Russia’s environmental agenda.
- Prohibit financial institutions’ investment in cryptocurrencies and related financial instruments like ETFs as well as the use of Russian financial intermediaries and Russian financial infrastructure to conduct cryptocurrency transactions, and stipulate liability for violating this ban.”
The world is divided on what actions to take on cryptocurrencies. Even Russia does not have a clear position, as its parliament wants to legalize the mining sector.
In short, the Central Bank of Russia does not want to lose its power over the people, as politicians see an opportunity to tax companies and citizens. Finally, it is worth remembering that today Russia is one of the largest mining centers on the planet.