Russia Turns to Cryptocurrencies for Cross-Border Payment Solutions

Russian companies are increasingly encountering difficulties in international transactions due to the threat of secondary sanctions against their counterparts. Against this backdrop, cryptocurrencies and payments through intermediaries are gaining popularity, writes Bloomberg.

The most significant challenge for Russia involves dealings with China, whose trade with Russia reached a record $240 billion in 2023.

In many cases, transactions with China are only possible through agents in former Soviet republics, according to executives from four commodity exporters speaking anonymously. In these transactions, foreign currency, including yuan, does not reach Russia.

“While Chinese clients pay agents in third countries in yuan, exporters often receive rubles in Moscow,” sources familiar with the situation told the publication, noting that many intermediary countries have their own restrictions on currency movement.

Cryptocurrency settlements via Hong Kong are also becoming increasingly popular, but even in these cases, Russians must use intermediaries in countries like Uzbekistan or Kazakhstan. Russian companies have even attempted barter deals or currency swaps with importers in the same banks, according to other informed sources.

The situation with Turkey is less dire—only some banks have halted operations with Russia. Trade settlements are mainly conducted in rubles.

In the case of India, pressure on banks due to the threat of sanctions is compounded by the fact that the rupee is not fully convertible. Russia has accumulated billions of dollars in rupees in local banks.

To address the situation, the Reserve Bank of India in July 2022 allowed these funds to be invested in local projects or Indian securities, as well as directed towards future purchases of goods and services. Lock-in periods and the inability to transfer invested funds make it difficult for Russia to liquidate them, according to people familiar with the rules.

Oil, Russia’s main export to India, is mostly paid for in UAE dirhams pegged to the US dollar. Some settlements are conducted in dollars, euros, and yuan. Overall, trade with India often goes through intermediary countries and in currencies other than the rupee, making trade costly, said a source close to the Russian government.

Previously, the Bank of Russia supported cross-border bitcoin payments and pointed out their advantages for circumventing Western sanctions and facilitating currency transfers abroad. In June, the first deputy chairman of the regulator, Vladimir Chistyukhin, suggested resorting to swaps and the use of cryptocurrencies “to keep the wheels turning.”

“[If] there are no normal settlements for products in foreign economic activity, for our export and import-dependent country, it [will be] disastrous,” he stated (quoted by RBC).

Back in late February 2024, Russia authorized the use of digital financial assets and utility digital rights for international agreements.

On July 24, the State Duma passed a bill in the first reading on an experimental legal regime allowing the use of cryptocurrencies for external payments.

The Bank of Russia also plans to legalize stablecoins for such settlements.