Russia’s Ban on Cryptocurrencies
On January 20, 2022, the Russian central bank proposed to crack down the cryptocurrencies.
- If this move is adopted, it could disrupt the burgeoning virtual money sector because Russia is one of the largest crypto-mining nations worldwide.
- This proposal was made as Russian authorities have been criticising the cryptocurrencies for years, as these can be used for illegal activities. Authorities also called for regulation.
- The Bank of Russia called to reinforce the ban on cryptocurrency payments, put ban on cryptocurrency mining, as well as to tight laws on trading virtual money.
Legal status to cryptocurrencies in Russia
In Russia, authorities granted legal status to cryptocurrencies in 2020. However, their use in payments was never authorised.
What are the concerns over cryptocurrencies in Russia?
- Using cryptocurrencies creates significant threats to well-being of Russian citizens as well to the stability of financial system.
- Swift growth of cryptocurrencies is driven by “speculative demand”, which ultimately leads to formation of “bubble”.
- Cryptos resemble financial “pyramid schemes”, since their value increases with emergence of new players in market.
Cryptocurrency is a collection of binary data, working as a medium of exchange. Records of individual coin ownership are stored in a digital ledger. Digital ledger is a computerized database using strong cryptography for securing transaction records. In general, cryptocurrencies are fiat currencies, because they are not backed by or convertible into commodities.
Increasing regulations on cryptocurrencies
Increasing popularity of cryptocurrencies and their adoption by financial institutions has forced some governments to assess whether regulation is required to protect users. As per Financial Action Task Force (FATF), cryptocurrency-related services are defined as “virtual asset service providers” (VASPs) and it recommends to regulate them with money laundering and know your customer (KYC) requirements. In 2021, 17 states in United States passed laws and resolutions related to cryptocurrency. China declared all cryptocurrency transactions of any kind illegal in September 2021 and cracked down on cryptocurrency.
Category: International / World Current Affairs