bne IntelliNews – Putin orders the regulation of crypto as country mulls embracing currencies like Bitcoin for international trade

The Russian State Duma is set to deliberate on a bill to regulate digital currencies after President Vladimir Putin highlighted the urgency of regulation for use both domestically and with other countries. 

Speaking at a meeting on July 17, Putin highlighted the necessity for Russia “not to miss the moment” with cryptocurrencies, and called on Parliament to work on creating “legal framework and regulation in a timely manner,” including taxation and tariffs. 

Since 2020, cryptocurrencies like Bitcoin have been legal in Russia, but may not be used to pay for goods and services. However, whether there should be more or fewer restrictions on their use has been a constant topic for discussion, especially when considering the increased difficulty of trade as a result of sanctions. In 2023, the Central Bank of Russia launched the digital ruble, a central bank digital currency (CBDC) based on the blockchain, but this has not been used for international trade.

“[Cryptocurrencies] are not monetary units in the usual sense, but are increasingly used in the world as a means of payment in international transactions,” Putin told gathered senior government figures, which included Prime Minister Mikhail Mishustin and  Finance Minister Anton Siluanov.

The forthcoming legislation, scheduled for parliamentary debate on July 23, would allow Russia to use cryptocurrency for international trade payments. Enhanced regulation of cryptocurrency payment systems in Russia could bolster trade with major partners like China and India, providing an alternative to traditional banking systems. Many banks, even in countries hostile to the US and the EU, are taking a cautious stance due to Western pressure and potential sanctions. This strategy mirrors Venezuela’s use of cryptocurrencies to circumvent restrictive economic measures.

However, despite their potential use as a means to circumvent Western sanctions, Putin’s desire for regulation is also driven by concerns about the energy-intensive process of mining cryptocurrencies. After China banned mining in 2021, Russia became the second-largest cryptocurrency mining country, following the US. 

“According to the Ministry of Energy, Russia annually spends 16bn kWh for these purposes, that is, almost 1.5% of the total electricity consumption in the country. The number continues to grow,” Putin explained, noting that Russia has relatively low prices for electricity.

The President warned that the uncontrolled increase in electricity consumption for cryptocurrency mining could lead to power shortages in certain regions. Areas like Dagestan have already experienced electricity shortages.

“The issue is, in fact, quite acute and fraught with serious consequences for enterprises, housing and communal services systems, and certain cities and towns,” Putin noted.

The bill proposed in the State Duma introduces regulations for cryptocurrency mining, giving the government the authority to restrict mining activities in certain regions based on a variety of factors.

Anton Gorelkin, Deputy Chairman of the State Duma Committee on Information Policy and co-author of the bill, clarified on Telegram that the document does not explicitly ban mining in specific regions of Russia. Instead, it provides the framework for imposing such restrictions if necessary.

“The government will be given the right to enforce a ban, considering numerous factors beyond just economic ones,” he wrote, noting that the bill is designed to combat the grey and black segments of the mining market.

“The cryptocurrency industry could become one of our main export items, and it is key to our country’s competitiveness.”