Russian Authorities Still Undecided on What to Do With Bitcoin

News and Analysis

Cryptocurrency-related news from Russia are plentiful this week following a meeting of the parliament lower chamber’s working group on digital currencies. Governmental stance towards cryptocurrencies is apparently yet to be finally determined, as there have been numerous reiterations as to future of virtual money in the world’s largest country.

The notorious and ominous draft law prepared by Russian ministry finance is said to be reviewed by June at latest. The bill in question introduces criminal responsibility for issuance and turnover of ‘money surrogates’, a term used in Russia to refer to some non-regulated means of payment, such as prepaid cards or cryptocurrency. The said activities may entail either a penalty fee of up to 500,000 rubles (about $6,500 at press time), or two years of corrective labor.

“It will be submitted by June. The government’s instruction restrains us to June 2016,” said TASS agency’s source following a session at the parliament’s working group “Legal regulation of issuance and turnover of cryptocurrency.”

Russian ministry of economic development has supported the initiative. Back then, the ministry’s spokesperson said that currently money surrogates, including cryptocurrencies, have no backing and legally liable subjects thereto. Cryptocurrency operations are speculative and carried out at so-called ‘virtual exchanges’, the ministry stated. The department believes that virtual currencies have a high risk of significant volatility related mostly to lack of asset backing.

The situation around cryptocurrencies may seem threatening to Russian authorities. Thus, Andrey Lugovoy, deputy chairman at the parliament’s committee for security and corruption prevention said that Russia ranks fifth in the list of countries with greatest number of bitcoin users.

“According to expert evaluation, Russia is in the fifth place on the global rating of countries in terms of bitcoin usage with 200 hundred users. Four countries outpacing Russia is USA with 1.2 million bitcoin users, then China with 350 thousand, and Germany with 250 thousand users,” Lugovoy stated at the same meeting.

Speaking at the meeting, Dmitry Buyanov, deputy head of the Federal Drug Control Service of the Russian Federation, claimed that Russian drug dealers are using cryptocurrency twenty times as often compared to 2014.

“There is little evidence that bitcoins are used in servicing terrorist activity and illegal drugs turnover, but that’s just because it’s February 25, 2016. In five years’ time the turnover will become disastrous. During last two years, drug dealers in Russia started using Bitcoins twenty times as often,” he said.

Georgy Smirnov, a spokesperson for the Russian Investigative Committee, told RIA Novosti that distribution and uncontrollable turnover of cryptocurrencies might cause the country’s financial system to collapse.

“There is a danger that uncontrollable money supply will be issued in the conditions of shrinked ruble liquidity, and that it will just supersede real money. As it is a speculative tool, our whole financial system will become a mere soap bubble. Such tools have some risks related to market collapse,” he said.

The Committee believes that cryptocurrency is not an alternate payment system, as it lacks any backing, and therefore is a speculative tool. This reasoning is common for the Committee and other departments like economic ministries of the Russian governments. The Investigative Committee also proposed to criminalize cryptocurrency operations.

However, Lugovoy added that neither country has a pronounced position as to using cryptocurrency, and that the current state of cryptocurrency remains ambiguous.

“While in early 2014 the Central Bank of Russia was negative about cryptocurrency, equalling it to prohibited money surrogates (and was supported by the Genral Prosecutor’s office), in summer 2014 it was stated that the Central Bank adhered to careful approach to bitcoins and saw a serious economic potential,” he said.

He also said the Central Bank might legalize and regulate some operations with bitcoin, especially peering transactions and settlements between individuals.

However, Russian officials concede that the events may take another turn. They exemplify China, where, as they say, cryptocurrency operations are prohibited only for legal persons, while individuals are free to use them.

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