Many readers of these pages will be familiar with Russia’s flip-flop against the use of cryptocurrency, which prior to the various Western sanctions imposed on Russian payment capabilities resulting from the invasion of Ukraine, had been against the use of bitcoin et al.
However, as we’ve been tracking over the past 6+ months, this has changed quite a lot from the pre-invasion position of Russian law and regulators’ positions. According to Livemint, a development we were unaware of previously; that is, the interest of Russia (and Iran, along with some unnamed “friendly” countries) in developing stable coins for cross-border settlement. However, the news is that these stablecoins would be backed by gold. The gold-backed U.S. dollars were scuttled in 1971 by President Nixon’s administration, and the world has worked with a standard floating-market-rate fiat currency ever since. Russia has been continuously working to circumvent payment sanctions (mainly SWIFT, but also a few others, including EU restrictions on Russian cryptocurrencies), so the increased interest in cryptocurrency settlement systems is not surprising, apart from the part in gold.
Livemint goes on to explain how Russia is working with Iran on a gold-backed cryptosystem, which of course seems entirely feasible, but then there would be logical questions of scale and feasibility, one of which is “how much gold would it take to make an effective transfer system?’ The article is too high rated for this, but we would expect more in the coming months.
Furthermore, the article suggests that the “Russian Ministry of Finance hopes to resolve issues related to cross-border payments in cryptocurrencies during the autumn session of the State Duma, the lower house of parliament”. We would expect this to happen, although no details on the process are provided. Just as with Russia, Iran has also been more consistently subject to various sanctions, so in August 2022 the relevant ministry approved the use of cryptocurrency for imports. It makes good sense that these two countries work together, as well as some other usual suspects, to find an alternative solution to the traditional routes for cross-border transactions.
Overview of Steve MurphyDirector, Commercial and Corporate Payments Advisory Service at Mercator Advisory Group.