Russia Multinational Stablecoin Initiative EAEU BRICS

According to Changpeng Zhao, Russian President Vladimir Putin is the most influential person in the blockchain industry. Zhao, the CEO of major cryptocurrency exchange Binance which added five trading pairs: Binance Coin (BNB), Bitcoin (BTC), Ether (ETH), XRP and Tether (USDT) against  the Russian ruble (RUB).    Putin was the first to propose a multinational stablecoin– digital currencies typically backed by commodities or  fiat currencies– along with Eurasian Economic Union (EAEU) and BRICS  countries (Member States) after being advised by Vitalik Buterin in the heels of the 2017 cryptocurrency bubble bust.

By means of the EAEU’s Trade and Economic Cooperation with China coming into effect this year, the EAEU countries and  BRICS Business Council fully support the establishment of a multinational stablecoin backed by commodities; along with BRICS pay, a cloud platform, which will connect their national payment systems through a mobile payment app.

Russia, India, and China are planning to link the national payment messaging systems CIPS of China and FMSB of Russia to accomplish this.   This will be a  major step on the path to de-dollarization and a de-coupling from the current US controlled global banking system.

Digitalization is a priority

Russia  is a leader in technology with eighty percent of its economy depending on exporting natural gas, oil, metals and timber.

Accordingly, to diversify Russia’s hydrocarbon energy intensive economy, in 2018 Putin signed a decree establishing a special “Digital Economy” state program, with digital energy infrastructure mentioned as a key component.  The Digital Development  Ministry has also developed  projects focused primarily on digitalization and regulation.

The expansion of the global digital economy created many new economic opportunities with Russians behind some of the most successful digital platforms in the world.  For example, Google was co-founded by Sergey Brin which has some 90 per cent of the market for Internet searches, and Ethereum was co-founded by Vitalik Buterin that allows programmers to develop decentralized blockchain applications. So much so that it’s losing its scalability which is resulting in very high gas fees, slow transaction times requiring a substantial electricity supply for processing.   Over the holidays, the Russian government said it had completed a multi-day test of a national, internal internet known as RuNet.

Currently the Russian Association of Cryptocurrency and Blockchain has over 2,000 members.  Companies involved in cryptocurrency payments include Yandex, WebMoney, Mail.ru, Vkontakte, Odnoklassniki, QIWI/QBT, MirPay, Wex.  Companies involved in crypto currency mining include BitRiver, Minery, Russian Mining Company.  Users all over the world are able to earn stablecoins by mining, even on their cell phones.

Stablecoin Regulation in Russia and Member States

Stablecoins could spark the mass adoption of cryptocurrencies and peer-to-peer transfers, cutting out the need for regulated middlemen and hindering efforts to halt criminal use,  according to the Financial Action Task Force (FATF), a global standard-setter in fighting money laundering.  This sentiment is shared by G-7G-20 regulators and EU finance ministers  which  banned the launch of stablecoins in the region until the bloc has a common approach to regulation, since the EU parliament acknowledged in its latest report on “Financial crimes, tax evasion and tax avoidance” that cross-border cryptocurrency transactions remained a very high risk in terms of money laundering, financing of terrorism and tax evasion in the EU.

Pedro Felicio, who is responsible for fighting money laundering at European police agency Europol, explained that “huge inflows of criminal money” are mainly coming into Europe from Russia and China”

However, the Bank of Russia, the country’s central bank (CBR),  has a hard line on money laundering. In the past few years it not only shut dozens of banks it said were involved in money laundering,  but also recently published a new set of anti-money laundering (AML) rules for suspicious transactions, Russian finance publication RBC reported on Feb. 17.

The regulatory update broadly categorizes any cryptocurrency-linked transaction as a potential money laundering risk according to regulation 375-P, such accounts might fall into the category of performing “dubious transactions.” [RBC].  New amendments by the CBR specifically mention crypto-assets in its criteria for freezing accounts.

The CBR’s updates to the Russian AML rules for cryptocurrency followed a renegade Russian Supreme Court ruling which deemed crypto theft criminal, directing it to make amendments to the  AML laws for cryptocurrencies.

On Feb 17 the CBR  also made a proposal to change the laws governing blockchain-built tokens and began testing stablecoins pegged to commodities in a regulatory sandbox.

Following the amendments to Russia’s AML and digital laws, the CBR and Russia’s Federal Security Service (FSB)  imposed a ban on using cryptocurrencies as a payment method in order to de-anonymize all Crypto users, according to a report from local news augmented reality (newsAR) platform Baza, while allowing the exchange of crypto to ruble at regulated financial institutions.  Because, Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, giving it the exclusive right to issue currency  and protect the ruble and ensure its stability.

Amid the European Central Bank officials urging European banks to counter Facebook’s Libra stablecoin that could potentially reach 2.7 billion users (35% of world population) with a cheaper payment solution, Russia has been updating its own and Member State legislation concerning cryptocurrencies in a synchronized fashion for its multinational stablecoin to succeed  as follows:

Stablecoin Regulation of Member States

Country Armenia Belarus Brazil China India Kazakhstan Kyrgyzstan Russia South Africa
Stablecoin Yes Yes Yes Yes Yes Yes Yes Yes Yes
CBDC Yes Yes Yes Yes Yes Yes Yes Yes Yes
Legal Yes Yes Yes Mixed Mixed Yes Mixed Mixed Yes
OECD BEPS Yes No Yes Yes Yes Yes Yes Yes Yes

Conclusion

With the cryptocurrency ban, Russia becomes the latest in a string of countries that have put the brakes on the promotion of financial services tied to cryptocurrencies while still exploring ways to develop a Fintech strategy to encourage innovation in cloud platform-based mobile digital payment solutions.

 

Russia’s  cyber-initiative connects some of the most promising economies stretching across Eurasia, Africa and South America.  As a result, more than 41% of the world will be using Blockchain and smart contract technology.   This initiative will potentially further boost science and technology development; create new jobs; improve trade efficiency among the Member States by replacing other fiat currencies used in trade settlements  and create a technologically resourceful trade block.

By Selva Ozelli, Esq., CPA, who is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

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