On August 8th, Russian President Vladimir Putin signed a bill formally legalizing cryptocurrency mining in Russia. This legislation introduces new concepts such as digital currency mining, mining pools, and mining infrastructure operators. Putin previously emphasized at an economic meeting that digital currencies represent a highly promising economic sector, and Russia must seize this opportunity to rapidly establish a legal framework and regulatory mechanism.
Rather than interpreting this as part of Russia’s grand strategic vision, it’s more accurate to view it as an attempt to break through the severe economic blockade imposed by international sanctions.
1. Challenges in Cross-Border Payment Settlements for Sino-Russian Trade
At the beginning of 2024, as Western sanctions intensified, major Chinese banks faced growing pressure from the U.S., particularly concerning their position in financial markets and the dollar clearing system. These banks adopted more cautious measures, restricting dollar transactions related to Russia—especially cross-border settlements involving USD. Many significantly reduced or entirely halted credit services for companies conducting business with Russia.
According to recent reports, as of June 12th, with the expansion of U.S. secondary sanctions against Russia, some small and medium-sized banks—such as Hunchun Rural Commercial Bank and Russia’s VTB Bank—have stopped processing cross-border remittances and suspended new account openings. Even existing corporate accounts face disruptions in receiving payments. Notably, VTB was added to the sanctions list by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).
Executives from three major Russian commodity exporters told Bloomberg that after the latest round of sanctions, direct payments from China to Russia became extremely difficult or impossible—even with RMB transactions. Payment delays, which previously took one or two days, now stretch to one to three months due to increased procedural requirements and compliance checks. In some cases, incomplete documentation leads to failed transactions.
The Russian Automobile Dealers Association recently warned that imports of Chinese cars and auto parts might halt due to settlement issues.
A report by the Renmin University’s Chongyang Institute highlights that between February and March 2024, 80% of transactions were blocked—including those via SPFS and CIPS RMB-Ruble exchanges. This aligns with firsthand accounts from businesses: Chinese funds struggle to reach Russian accounts, and Russian firms face payment obstacles.
2. The Growing Problem of Cross-Border Payments in Sino-Russian Trade
According to Bloomberg, China’s share in Russia’s total trade rose to 28% in 2023, up from 19% in 2021. Meanwhile, the EU’s share dropped from 36% to 17% over the same period.
By May 2024, RMB accounted for only 53.6% of trading volume on Russian exchanges. However, U.S. sanctions in June forced the suspension of USD and EUR trading, pushing RMB’s share to 99.6%—effectively making it the sole settlement currency.
In over-the-counter (OTC) markets, USD and EUR remain active. June saw OTC transactions dip slightly to 13 trillion rubles, with RMB’s share rising 0.8 percentage points to 40%. Major exporters reported robust sales, reaching $14.6 billion that month.
These figures underscore the critical need for viable payment solutions. Without them, Chinese businesses face significant financial losses.
The current payment bottleneck resembles a financial traffic jam—far more disruptive than logistical delays, as payments form the lifeblood of bilateral trade.
3. Cryptocurrency as a Cross-Border Payment Solution
Against this backdrop, China and Russia are exploring alternative payment methods to circumvent sanctions.
Some enterprises active in Sino-Russian trade initially focused on importing Chinese-made consumer goods—such as daily necessities, electronics, apparel, and home goods—into Russia. They established robust logistics and distribution networks to facilitate rapid market entry. However, sanctions-induced payment hurdles have slashed trade volumes.
These firms discovered that smaller regional Chinese banks, being less visible on the international sanctions radar, could handle Russian transactions more flexibly. Yet as sanctions tightened, even these channels became constrained.
The solution? Cryptocurrency-based cross-border payments.
Through digital assets like Tether (USDT), settlements now complete within a day—streamlining processes and reducing costs.
4. Russia’s Policy Shift: Legalizing Crypto Cross-Border Payments
- Bitcoin-Digital Ruble Exchange: Anatoly Aksakov, Chairman of the State Duma Committee on Financial Markets, predicted Russians could soon exchange Bitcoin for digital rubles.
- Digital Ruble Push: Russia is advancing its central bank digital currency (CBDC). Pilot programs show significant progress, with Putin endorsing faster integration.
- CBDC Adoption: Central Bank Governor Elvira Nabiullina stated that by 2031, the digital ruble will be ubiquitous, offering low- or zero-fee transactions.
- New Legislation: Starting September 1, 2024, Russia allows cross-border settlements and exchange trading of digital currencies under an experimental legal framework.
Additionally, the Russian government is considering permanently legalizing stablecoins for international transactions to simplify cross-border payments.
This marks a dramatic reversal from Russia’s earlier stance. In 2017, cryptocurrencies were viewed as high-risk, associated with money laundering and terrorism financing. The 2020 Digital Financial Assets Law recognized crypto as property but banned its use for payments.
The recent policy U-turn suggests Russia has achieved tangible success using crypto to mitigate sanctions—prompting rapid legal adjustments.
5. Can Crypto Payments Fully Evade Sanctions?
A critical question revolves around compliance—particularly with FATF anti-money laundering (AML) rules and the Bank Secrecy Act. Does crypto’s decentralized nature exempt it from these frameworks?
The answer lies in execution details. While cryptocurrencies like Bitcoin champion decentralization, political and regulatory pressures are pulling them toward centralized control. Authorities employ technical measures, licensing regimes, and AML laws to maintain oversight.
This tension resembles a “Trojan Horse” scenario. Crypto’s revolutionary ethos clashes with capital’s profit-driven pragmatism. Lobbying inevitably draws regulators into the fray, shaping rules that serve vested interests.
Yet this isn’t necessarily bad for crypto. Take stablecoins like USDC and USDT: they uphold dollar-based settlements while enabling sanctioned nations to bypass restrictions. Tornado Cash, a crypto mixer sanctioned in 2022, saw deposits surge to $1.8 billion in 2024—a 45% year-over-year increase—demonstrating resilience against sanctions.
The broader question is whether decentralized technologies can outmaneuver centralized systems—or if they’ll be co-opted. The current solutions reflect a dynamic博弈 (game theory) outcome between innovation and regulation.
6. Balancing Innovation and Compliance
While crypto payments offer breakthroughs, they also risk enabling illicit activities. For instance, Cambodia’s Huione Guarantee was implicated in laundering billions for cybercriminals.
Legitimate trade using crypto settlements must enhance AML capabilities and adhere to local laws to avoid becoming unwitting conduits for money laundering.
We advocate leveraging crypto to modernize outdated payment systems—reshaping inequitable rules. Aiying艾盈 will continue monitoring global crypto payment trends and welcomes further discussion.
FAQs
Q1: How does cryptocurrency help Russian businesses bypass sanctions?
A1: By using stablecoins like USDT, firms can settle transactions outside traditional banking systems, avoiding USD/EUR restrictions.
Q2: Is crypto mining legal in Russia?
A2: Yes, since August 2024, Russia legalized mining and introduced regulations for mining pools and infrastructure.
Q3: What’s the role of China’s digital yuan (e-CNY) in Sino-Russian trade?
A3: While e-CNY trials exist, RMB’s dominance in Russian exchanges (99.6%) currently overshadows its use.
Q4: How do sanctions impact small Chinese banks?
A4: Smaller banks initially operated under the radar but now face tightening restrictions, pushing businesses toward crypto.
Q5: Can stablecoins like USDT replace traditional banking for cross-border trade?
A5: Partially. They offer speed and cost benefits but require compliance with evolving AML/CFT standards.
Q6: What’s Russia’s long-term plan for digital currencies?
A6: To integrate the digital ruble into daily transactions by 2031 while permitting crypto for international settlements.