The Cryptocurrency Roundtable in the Russian Parliament: Results and Possible Consequences

News and Analysis

On June 2, the Russian parliament held a roundtable, or a conference, titled Perspectives of Implementation and Development of Blockchain Technology in Russia.

Official stance towards cryptocurrencies in Russia has a long history of controversies. Some departments, including the ministry of finance and the country’s investigative committee, consider it a threat to the established economy and propose to penalize it by introducing a long imprisonment for its issuance and usage; however, other officials, including top managers of local state-owned banks and parliament members, incline to regulative approach, rather than banning.

The Roundtable

One of such parliament members, Andrei Lugovoy, earlier known mostly as the prime suspect in the case of Alexander Litvinenko’s murder in London, has organized a roundtable at the Parliament to discuss the issues related to cryptocurrency in the light of recent legislative initiatives and their controversies.

Speaking at the conference, Lugovoy said:

“The stance towards cryptocurrencies is ambiguous in modern-day world; it varies from complete non-acceptance to full-fledged supporting. The Ministry of Finance’s draft law on penalization of money surrogates became a kind of a trigger for practical scientists to start open and weighted discussions on the legal status and future of cryptocurrencies.”

He has also announced creation of an inter-department working group dedicated to analyze and propose possible strategies of legalization of cryptocurrency. However, Lugovoy noted that, while he generally supports cryptocurrency, he still stands against so-called money surrogates, which, according to the bill set to ban bitcoin in Russia, encompass cryptocurrency alongside with pre-paid cards and other similar means of payment.

“The question is about what to consider money surrogates, and what financial risks there are in cryptocurrencies. A cryptocurrency’s success depends on how fast legislators manage to mitigate its turnover’s risks and to determine the area of guaranteed freedom of a user,” Lugovoy noted.

Deputy director of Russia’s Federal Service for Financial Monitoring Pavel Livadny deems it necessary to introduce a regulatory framework for cryptocurrencies and blockchain technology as a federal law.

Speaking about cryptocurrencies at the same conference, he said:

“The system is based on trust. No legal mechanisms for protection of data and user rights are elaborated. Payments tools here are brainchildren of artistic initiatives from different collectives. It all requires an order, there has to be a relevant level of regulation. Certainly, in a form of a federal law at first, and then there will be bylaws by the government and federal entities.”

The Questions of Blockchain

Speaking about blockchain technology, Lugovoy noted:

“Blockchain technology is an evident advantage of cryptocurrency. In the course of last few years, it separated from bitcoin, and is now considered a safe system for data collection, storage, and exchange. Blockchain is a basis for development of new systems for voting, insurance, real estate title registration, and storage of fingerprints and socially important data. Public blockchains can’t work without cryptocurrency. The conclusion is that simple: ban of cryptocurrency may halt blockchain’s development and cause technological inferiority of Russia.”

Those statements evidently echo recent speech given by German Gref, head of Russia’s biggest state-owned bank Sberbank, who said that penalizing Bitcoin in Russia will result in blockchain development’s halting and regress of the country in general.

“Blockchain, to my reckoning, is the new internet. Or, more precisely, an idea equal to the internet. The idea didn’t even take shape when the regulator stated that cryptocurrencies must not be issued. Then they said one can’t buy them. And now they’re talking about putting those attempting to buy it in jail,” Gref stated.

As reported by ForkLog earlier this week, Dmitry Marinichev, Russia’s Internet ombudsman, said that the government’s attempts to interfere in the development of blockchain technology, and to ban bitcoins, are totally meaningless.

“Determining the very technology and banning bitcoin on the government level, as it’s done in Russia, is downright ludicrous. I can agree with any of my fellow citizens or a U.S. citizen to sell my apartment for ten kisses, and no one can prohibit me to use this ‘cryptocurrency’, it would be a decisively confirmed currency,” he said.

Recommendations for the Central Bank

The roundtable’s resolution recommends the Parliament, the State Duma and finance-related departments of the country’s government to consider using blockchain technology in banking, insurance, and social policy.

“We recommend the State Duma, the Central Bank of Russia, and related ministries to assess legal, organizational, and financial options of introducing blockchain technology in banking, insurance, social policy, etc,” reads the conference’s conclusive document.

The roundtable’s participants also recommended the working group headed by Lugovoy to develop a unified strategy for electronic currency’s turnover, and prepare some proposals as to amend the prevailing legislation in order to make the technology legally acceptable in some realms, like social security.

The resolution reads:

“The combination of transparency and pseudonymity, and irreversibility of transactions make blockchain a promising technology for development of completely new social projects (voting system, insurance, title registration, government ledgers, etc.)”

The resolution also suggests that the pros and cons of cryptocurrency have to be thoroughly analyzed. Results of that analysis will have to be submitted to the President’s Administration, and federal executive and legislative authorities.

“We recommend to determine the parameters of legitimacy of cryptocurrency, with subsequent approbation of its turnover techniques; initiate elaboration of cryptocurrency’s legal status in international organizations in order to produce a unified international strategy for regulation thereof,” the resolution reads.

Cryptocurrencies and Sanctions

Last week, Pavel Livadny stated that some government institutions are discussing possible creation of a national cryptocurrency, which, however, would have made any other kind of cryptocurrency illegal. The idea circulated across the Ministry of finance and the Central Bank, with some representatives of private banks involved.

However, the Central Bank was quite straightforward in this regard, and stated that no such thing would happen. However, the same reply suggested that even though cryptocurrency wouldn’t be recognized as a monetary unit, it does not mean that it wouldn’t be recognized at all.

Recognizing bitcoin a legal monetary unit would require the legislators to change the country’s constitution, which is very unlikely, regarding generally negative stance towards the issue in the corridors of power. However, according to Elina Sidorenko, member of the working group, cryptocurrency might be used as a universal payments tool. It would mean that someone willing to use cryptocurrency, will have to officially exchange fiat money for it, which would certainly entail mandatory identification. This would require introducing amendments only to a single law titled ‘On the National Payments System’, as opposed to the constitution.

This policy, however, would deprive bitcoin and other cryptocurrencies from their main advantage of anonymity/pseudonymity and convenience. Such approach would cancel the very idea of a cryptocurrency as money independent from the nation state.

Viktor Dostov, chairman at E-Money Association notes:

“The problem is that the approach in question causes cryptocurrency to lose its essence. In fact, they want to take a piece of cryptocurrency technology, and create a very peculiar technological platform for fast, effective and secure settlements on its basis.”

The other important issue of governmental use of cryptocurrencies is sanctions imposed on Russia in the wake of the Ukrainian crisis. One of the most popular threats to Russia is its disconnection from SWIFT, an international system for inter-bank transactions. However, using blockchain technology and a cryptocurrency would allow the country’s financial institutions to bypass this possible discontinuation, even though it is very unlikely to happen considering the current state of international affairs.

However, it is quite evident that cryptocurrency managed to garner some support in Russia’s corridors of power, which are generally hostile to anything new.

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