Ru-coin? As Moscow Moves to Regulate Crypto Transactions, Russian Central Bank Plans to Build Its Own Cryptocurrency

Numerous announcements came out of this week's St. Petersburg International Economic Forum, where ex-Fox News presenter Megyn Kelly interviewed Russian President Vladimir Putin alongside Indian Prime Minister Narendra Modi (about which the Russian Analyst will be posting soon).

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One of the most important state declarations: that of Deputy Russian Central Bank Governor Olga Skorobogatova. She stated that the Federation is prepared to issue its own national e-currency within the next three years. This came after Deputy Finance Minister Aleksey Moiseev's call in April for Russian legislation to regulate trading in crypto-currencies and promote transparency in crypto-transactions by 2018.

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"Regulators of all countries have come to the conclusion that it is necessary to do a national virtual currency. This is the future. Each country will decide the issue of a specific time and maturity independently," said Skorobogatova, speaking at St. Petersburg International Economic Forum (SPIEF 2017). Skorobogatova said testing of a national virtual currency has already taken place on the Masterchain and Hyperledger platforms. She added that the details of the project could be revealed in two to three years. While Russian officials have been divided on cryptocurrencies, the technology has been backed by the financial sector, most notably by Herman Gref the head of Russia’s largest lender Sberbank. During the Forum, First Deputy Chairman of the Bank of Russia Sergey Shvetsov also said that one of the Russian stock exchanges is planning to allow trading in virtual currencies. “There is a discussion whether it is a commodity or not," he told RIA Novosti. Cryptocurrencies could be recognized in Russia by 2018, said Deputy Finance Minister Aleksey Moiseev in April. Although he expressed concern about the anonymity of transactions. “The state needs to know who at every moment of time stands on both sides of the financial chain,” Moiseev said in an interview, as cited by Bloomberg. “If there’s a transaction, the people who facilitate it should understand from whom they bought and to whom they were selling, just like with bank operations.”

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The announcement also comes amidst speculation that, after buying gold at a furious pace for its own reserves, the CBRF intends to slow the rate of acquiring the precious metal and foreign currencies this year. This is not altogether a surprising development, considering that Russia is entering an election year, with Putin likely to run for president and be reelected again in March 2018. Therefore state salaries are likely to rise, even as oil prices either stagnate or decline, as the government focuses less on fighting inflation and more on spending and promoting higher wages.

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The primary objective for the CBRF in promoting cryptocurrencies in the national economy is not so much to create speculation in an electronic double eagle or bit-ruble, but to fight online fraud, phishing and cyber-embezzlement through proliferating the blockchain technology. The announcement of legislation that will soon formally legalize and regulate bitcoin, ethereum, dash and trading in them on the Moscow Exchange (which came from the merger of the MICEX and RTS at the end of 2011) is consistent with this objective. As Russia shifts from a public single payer (which in practice, has for the vast majority of Russians required a great deal of private spending to obtain quality care) to an individual insurance based health care system, the uses of blockchain in medical records keeping and secure transactions are also of great importance. Russia's controversial and often overheated real estate sector, faced with populist pressure for greater transparency in both state-owned and private large scale property transactions is another area where the blockchain can reap major dividends in fighting corruption. The vast country also needs greater liquidity outside of its often shaky regional banks, plus alternatives to the dollar and euro. Transactions in both global reserve currencies have been subject to both official and unofficial (that is undeclared) sanctions since Moscow returned Crimea to Russia and the Donbass proxy war with NATO began in 2014.

Looking ahead to the 2020s, as Dr. Jim Willie and London Paul have described, there may be a role for gold-linked bitcoin in trade settlement within the Eurasian Economic Union (EEU). Whether Russian bankers both central and connected to the CBRF like bankers around the world will permit or can prevent crowdfunding and micro-lending using crypto currencies for small business start ups is another interesting question that will impact the Eurasian economic space.

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