Bank of Russia lists ‘systemic threats’ from cryptocurrencies

The Bank of Russia published the 2021 annual report, in which it again highlighted the risks associated with cryptocurrencies.

According to some estimates, the volume of Russian citizens’ cryptocurrency transactions reached $5 billion a year, the central bank noted.

The regulator believes that the spread of crypto assets threatens risks to Russia’s financial stability:

There is a risk of undermining monetary circulation and the loss of sovereignty of the national currency, and increased risks of savings flowing from the traditional financial system into the unregulated segment of cryptocurrencies, which threatens the financial stability of banks.

The Bank of Russia noted that the spread of cryptocurrencies in the country and their rising prices point to the formation of a “bubble.” The regulator also reiterated that crypto assets have pyramid-like characteristics, and citizens may lose their investments due to price volatility and limited investor protection.

The Bank of Russia believes that further growth of the cryptocurrency market and its involvement by banks threaten that financial intermediaries will bear “liquidity risk, market risk and credit risk” typical for cryptocurrencies.

Thus, rising interest among Russian citizens, substantial investments and high risks of operations with cryptocurrencies create potential systemic threats, and the Bank of Russia has proposed implementing a number of measures to regulate the aforementioned risks.

The Russian central bank insists on a complete ban on the issuance, circulation and exchange of cryptocurrencies, as well as on the organization of such activities on the territory of the Russian Federation.

The Russian Ministry of Finance does not agree with such a radical position and proposes to regulate the market; to this end the ministry has drafted a separate bill.

Nevertheless the Bank of Russia continues to argue for the need to ban cryptocurrencies. The sanctions imposed against Russia due to the invasion of Ukraine have also not softened the regulator’s stance towards crypto assets.

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