Russia Is Creating a Legal System For Crypto To Avoid Western Sanctions

Russia is moving to integrate crypto into its international commerce. The government announced today that it will legalize its use for foreign trade settlements.

This decision is a strategic response to Western sanctions. By establishing a legal system for cross-border crypto payments, Russia can bypass restrictions on traditional banking channels.

Russia Legalizes Crypto Use for Foreign Trade

Russia’s Ministry of Finance and Central Bank have formally agreed to legalize cryptocurrency to settle international trade deals.

This decision formalizes the experimental legal regime (ELR) launched in September, which initially permitted the piloting of crypto for cross-border transactions. 

The move is widely viewed as a strategic measure to provide Russian businesses with an alternative payment channel. Doing so can ease the strain caused by Western sanctions on the country’s access to traditional global banking.

The new legislation will be accompanied by strict regulation and enhanced oversight. According to Finance Minister Anton Siluanov, despite the strategic goal of sanctions relief, regulators remain intensely focused on controlling the inherent financial risks associated with decentralized cryptocurrencies.

Proposed oversight measures will include stringent Anti-Money Laundering (AML) and Know-Your-Customer (KYC) standards enforced by the Federal Financial Monitoring Service. Meanwhile, all crypto transactions will be processed through a regulated infrastructure under the direct supervision of Russia’s Central Bank.

The new legal framework only applies to foreign trade settlements and maintains the ban on using cryptocurrency for domestic payments within Russia. Regulators designed this core policy to protect the ruble’s financial stability.

A Response to Western Sanctions

Russia’s decision to legalize cryptocurrency for foreign trade settlements is a strategic response to the severe economic pressure imposed by Western nations following its invasion of Ukraine in February 2022.

The international community, primarily led by Western countries, responded to the invasion with an unprecedented package of coordinated economic measures designed to isolate Russia from the global financial system.

The most crippling of these sanctions included the disconnection of major Russian banks from the SWIFT system. This secure messaging network plays an indispensable role in global financial transfers.

The move paralyzed Russian banks’ ability to send or receive international payments in currencies like the US dollar or euro. 

These sanctions created massive obstacles for Russian companies conducting routine foreign trade, leading to major difficulties and delays in international transfers. The subsequent legalization of crypto for foreign trade is directly relevant to this financial bottleneck.

This new framework allows Russia to conduct cross-border transactions through a sanctions-proof alternative. It also facilitates trade with key allies like China, India, and Turkey, which have not joined the Western sanctions regime.