Russia Legalizes Digital Financial Assets for International Transactions Amid Skepticism

On February 27, the Russian State Duma passed in the third reading a bill on the use of digital financial assets (DFAs) in international transactions.

According to the document, DFAs and utility digital rights can now be used as consideration in foreign trade agreements and contracts between residents and non-residents.

The “anti-money laundering law” is amended to require mandatory control of transactions involving the transfer of utility digital rights or DFAs within foreign economic activity.

The Central Bank has the right to request information from the issuer about the beneficial owners of the entities that issued these assets.

Additionally, the Bank of Russia is empowered to determine the conditions and prohibitions for transactions with digital assets.

The law will take effect upon its official publication.

The adoption of the document comes amid reports of restrictions on transactions with Russia by banks in Turkey, the UAE, and China.

A Law to Boost Deputies’ KPIs

Currently, ten companies in Russia hold licenses to issue DFAs: Atomyze, Lighthouse, Sberbank, Alfa-Bank, Masterchain, Eurofinance Mosnarbank, Tokeon, SPB Exchange, Blockchain Hub, and the National Settlement Depository.

Dmitry Machikhin, founder and CEO of BitOK, is convinced that the law has specific beneficiaries and sponsors. In practice, the demand for DFAs in cross-border settlements is, in his words, “non-existent.”

“As an export player, there’s absolutely no point in bothering with DFAs—solutions have long existed. If I haven’t solved my issue simply with currency, I’ll solve it with crypto, and no one will say anything because there’s no desire to properly regulate and monitor,” Machikhin told ForkLog.

The expert views the law as an “incomprehensible toy” to “report back” and boost deputies’ KPIs.

“This won’t work for international settlements. It’s like paying for goods with securities. Who on the other side needs this?” the expert questions.

Liquidity and Infrastructure Woes

DFAs are conceived and remain exclusively Russian digital assets. Moreover, they face numerous issues, particularly related to liquidity, noted Andrey Tugarin, founder of the legal company GMT Legal.

“The asset has no secondary market, no liquidity, all sales are one-way, and no one wants to buy it. There are no prerequisites for change even remotely,” explained the lawyer.

According to recent estimates by the ACRA, around 350 DFA issuances have been made, with the market volume at the end of 2023 amounting to approximately 60 billion rubles.

“For this to work, both the sender and receiver need to use DFAs, recognize it as a payment method, use one platform, and be able to sell it locally. Such a comprehensive setup doesn’t exist even in Russia, let alone other countries,” Tugarin added.

He agrees that the issue of cross-border payments for Russia is pressing. However, actual transactions with DFAs in foreign economic activity will only be possible in five to seven years.

Tugarin questions the necessity of such a law without the necessary infrastructure.

A Threat to Cryptocurrencies

In the autumn of 2022, it was publicly acknowledged that Russian companies conduct “limited” transactions in cryptocurrencies with unfriendly countries.

At the end of 2023, Russia launched the Exved exchange, which facilitates cross-border payments for Russian importers and exporters in foreign economic activity.

Its representatives recently expressed concerns that the new bill could potentially worsen the situation with international settlements through cryptocurrencies.

Sergey Mendeleev, CEO of Indefibank, concurs:

“The law puts any operations with other digital assets, utility and digital rights (read—stablecoins), which have been successfully used in foreign trade for a year and a half, under close scrutiny.”

According to him, using DFAs in foreign economic activity instead of cryptocurrencies is akin to selling goods for colored shells instead of real money.

“While governments of unfriendly countries gather experts to figure out how to ban crypto use in Russia, we shoot ourselves in the foot, doing all the work for them and nullifying all established connections. This is called sabotage; there can be no other comments on this,” Mendeleev added.

Previously, the Central Bank of Russia stated it does not refuse to discuss the possibility of cross-border settlements in cryptocurrency, as there is “demand from exporters and importers under sanctions.”

Work on launching cross-border settlements using DFAs and utility digital rights has been underway by the Russian government and central bank since autumn 2023.

In February 2024, a bill was introduced to the State Duma that introduces the concept of a secured stablecoin and allows its use in foreign trade settlements.

Additionally, negotiations continue on creating a gold-backed stablecoin for cross-border settlements between Russia and Iran.