Get ready to see the stablecoin regulation wars heat up.
Tuesday (Sept. 6), Russia’s official government news agency, Tass, reported that the government was turning to stablecoins to make cross-border payments to friendly nations as a way to bypass sanctions.
This is exactly what naysayers in Congress have been fearing for months: that cryptocurrencies will be used to bypass sanctions — resulting in tougher, less privacy-friendly regulations in the U.S.
Since its invasion of Ukraine, these U.S.- and EU-led international sanctions have cut off Russia’s access to standard payments rails like SWIFT.
“The Finance Ministry and the Bank of Russia agreed that in the current conditions ‘it is impossible to do without cross-border settlements in cryptocurrency,’” Tass reported on Tuesday (Sept. 6.).
As a result, Russia is working to create new bilateral payments platforms using “mutually acceptable tokenized instruments” to bypass the need to use dollars or euros for international settlements, Deputy Finance Minister Alexey Moiseyev told Tass.
These are “essentially clearing platforms that we are currently developing with these countries,” he said. “Stablecoins can be pegged to some generally recognized instrument, for example, gold, the value of which is clear and observable for all participants.”
It isn’t the first time Russia has talked of using crypto to bypass sanctions, even as it bans its use by citizens to make payments.
While pretty clearly speaking tongue-in-cheek about using bitcoin to bypass sanctions that prevent it from getting paid gas exports in dollars — the world’s reserve currency — or euros.
“We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan,” Pavel Zavalny, head of the Russian State Duma’s Committee on Energy, said in March. “With Turkey, it will be lira and rubles. The set of currencies can be different, and this is normal practice. If there are bitcoins, we will trade bitcoins.”
Breaking the dollar’s hold on international trade pricing may be difficult, but using stablecoins could be an efficient workaround on sanctions.
An Impact on U.S. Thinking
Russia’s overtures come at a delicate time for crypto — especially the stablecoin industries.
With the $48 billion collapse of the Terra/LUNA algorithmic stablecoin pair in May, the generally dollar-pegged tokens are considered a higher priority than broader crypto regulation. Besides that, many regulators and central bankers are highly skeptical about stablecoins’ ability to let consumers bypass national currencies altogether, undermining their control of their economies.
The push across some 100 countries to at least consider central bank digital currencies is in large part a response to stablecoin fears.
The focus on Russia was highlighted in March when four Democratic U.S. Senators including Elizabeth Warren (D-Mass.) wrote to Treasury Secretary Janet Yellen, saying that “such digital assets and alternative payment platforms may facilitate evasion of U.S. and global sanctions, potentially undermining the efficacy of our sanctions regime.”
Negotiations in Congress that would lead to stablecoin-only regulatory action this year before a broader crypto-focused bill next year, look to be stalling over a number of issues, including how far the privacy vs. anti-money-laundering (AML) balance should tilt in one direction or another.
Another big debate is who should be able to issue stablecoins: Federally regulated and FDIC insured banks or institutions chartered at the state level as well. Again, a focus on stablecoins — even private ones — as sanctions busters could push that toward more centralized control.
Current Coins Need not Apply
If Russia does turn to stablecoins for international settlements, it won’t use the major existing ones.
Both Tether, issuer of leading stablecoin USDT, and Circle, issuer of No. 2 stablecoin USDC, have frozen stablecoins in a way that developers of decentralized cryptocurrencies largely can’t.
While centralized exchanges like Coinbase, FTX and Binance can shut off access to crypto held in their wallets, once someone has a bitcoin or other cryptocurrency in their possession and knows the private key code, there is no way to stop them from sending it to someone else, and no way to prevent the recipient from getting it.
Off-ramping that crypto for fiat is another story as the size of the transactions alone would make them noticeable on a public blockchain.
But a private payments platform, particularly one backed by a reserve containing a relatively price-stable commodity like gold, would make that far easier.
After all, for all of crypto enthusiasts’ talk of privacy, every transaction on a public blockchain is traceable. The same can’t be said for gold.
For all PYMNTS Crypto coverage, subscribe to the daily Crypto Newsletter.
We’re always on the lookout for opportunities to partner with innovators and disruptors.