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(Kitco News) – Russian megabank Rosbank has announced the launch of a pilot program for cross-border payments using cryptocurrency, becoming the first systemically important Russian bank to launch such a service in the country.
According to a report from local news service RBC, Rosbank utilizes a “fintech intermediary” that buys cryptocurrency abroad at the expense of the importer and transfers it to a foreign supplier. Russian fintech service B-crypto, which specializes in making international payments in digital currencies, has been selected to provide technical support for cryptocurrency settlements.
A representative from Rosbank said that corporate and private clients have already begun to use the service to conduct pilot transactions.
In order for a Russian individual or company to use the new service to pay for imported goods with crypto, they must first complete the Know Your Client (KYC) verification process with both Rosbank and B-crypto.
In order to use the service for business settlements, importers are required to stipulate in their contracts with suppliers that payments via cryptocurrency are possible and must register the recipient’s crypto wallet. The supplier can then issue an invoice to the Russian company for payment in cryptocurrency which includes the address for the crypto wallet where payments are to be sent.
Once the importer and B-crypto sign an agreement, the importer can deposit fiat funds for the purchase of cryptocurrency to an account with Rosbank, which then transfers money to B-crypto. B-crypto then uses the transferred funds to buy cryptocurrency in “friendly” countries and transfers it to the foreign supplier.
Rosbank is the only major Russian bank to provide a cross-border crypto payments service at present. According to Alexey Voylukov, Vice President of the Association of Banks of Russia, “cross-border cryptocurrency transfers are the business of small banks, and such services have not yet been encountered among large credit institutions.”
Voylukov added that the leading banks are not interested in providing the service at this time due to the lack of cryptocurrency liquidity necessary to service the operations of large clients.
Cross-border transfers in cryptocurrencies raise multiple concerns regarding the circumvention of sanctions, said Eduard Davydov, a senior partner at Emet Law Firm.
Davydov noted that many countries are currently in the process of updating or amending laws to include cryptocurrency transactions in their sanctions regimes, meaning such transactions would be viewed as illegal and would result in legal consequences for the parties involved.
An example of this has already occurred in the European Union, where leaders introduced a new set of sanctions in October that includes a complete ban on cross-border crypto payments between Russia and the EU. The new sanctions were put in place in response to the ongoing conflict in Ukraine.
Other services that can no longer be provided to the government of Russia or its legal residents include IT consultancy, legal advisory, architecture and engineering services.
While the integration of cryptocurrency payments offers an additional route for cross-border settlements, Vladimir Chistyukhin, First Deputy Chair of the Bank of Russia, said that cryptos will “not become a panacea for international payments,” but underscored that “everything must be done to use any means of settlement with foreign partners.”
Ksenia Yudaeva, First Deputy Chair of the Central Bank of Russia (CBR), recently warned about the perils of allowing the use of cryptocurrencies in the Russian economy, saying that Russian businesses using cryptocurrencies in cross-border settlements must do so in a way that ensures crypto does not spread throughout the Russian financial system.
“Our main condition, as the Central Bank, is that the creation of such platforms does not lead to the infection of our financial system with cryptocurrencies and does not create a stir in society associated with the desire to hold [digital assets],” she said. “We have always been, are, and remain against encouraging or allowing the use of cryptocurrencies within Russia, but we believe that cryptocurrencies and digital assets can be used in international trade.”
The State Duma is currently debating a bill related to the legalization of cryptocurrency mining and experimental legal regimes. If these measures are adopted, the Central Bank of Russia plans to start testing cross-border payments in cryptocurrency mined by miners through authorized organizations.
In May, the State Duma committee on the financial market announced that it was abandoning its plans to create a national cryptocurrency exchange and will instead move to establish rules governing the use of cryptocurrency exchanges for cross-border transactions.
As part of the pivot away from a national crypto exchange, the Russian Ministry of Finance will also work to help new exchanges get established so they can provide a workaround to the sanctions Western nations have placed on Russia.
According to Anatoly Aksakov, head of the State Duma committee on the financial market, the CBR will be tasked with regulating cryptocurrency exchanges interested in facilitating cross-border transactions, and the rules will be included in the draft law on experimental legal regimes currently being developed.
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