Many readers of these pages will be familiar with the flip-flop on the part of Russia vis-à-vis the use of cryptocurrency, which prior to the various western sanctions placed upon Russian payments capabilities resulting from the Ukraine invasion, had been against the use of bitcoin et al.
However, as we have been tracking over the past 6-plus months, this has changed quite a bit from the pre-invasion stance by Russian law and regulator stances. According to Livemint, a development of which we were not previously aware of; that is, Russia’s (and Iran, along with some un-named ‘friendly’ countries’) interest in developing stable coins for cross-border settlement. However, the news is that these stablecoins would be backed by gold. Gold-backed U.S. dollars were scuttled back in 1971 by President Nixon’s administration, and the world has been working from a floating market rate fiat currency standard ever since. Russia has been continuously working to bypass the payment sanctions (mostly SWIFT, but some others as well, including EU restrictions on Russian cryptos), so the higher interest in crypto settlement systems is nothing surprising other than the gold part.
Livemint goes on to explain how Russia is working with Iran on a gold-backed crypto system, which of course seems entirely feasible, but then there would be logical questions around scale and feasibility, one of which is ‘how much gold would be required to make an effective system of transfer?’ The article is too high-level for that, but we would expect more to come in the coming months.
What’s more, the article suggests that Russia’s “Finance Ministry 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 that to happen, although no details are given as to the process. Just as with Russia, Iran has been more consistently subject to various sanctions as well, so in August 2022, the appropriate ministry approved the use of cryptocurrency for imports. It is quite logical for these two countries to be working together—as well as some other usual suspects—to find a workaround to the traditional pathways to cross-border transactions.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.