Russia’s central bank wants to ban digital currencies in their entirety, from block reward mining to their use as payment methods. In a recent report, the bank claimed that digital currencies threaten the country’s financial stability and monetary policy sovereignty. However, many have voiced their opposition to the proposal, including its Ministry of Finance, political leaders, and top tech executives.
Digital currencies rely primarily on speculative demand, which has been the force behind their rapid growth, the Central Bank of Russia argued in its report.
The bank believes that digital currencies contain characteristics of a financial pyramid. It further warned the Russian public of a potential bubble in the market in which they could lose all their investment. Additionally, the report tied digital currencies to illegal activities and a heightened risk of Russians draining money from the national economy to offshore accounts.
The bank called for a complete ban on digital currency exchanges, over-the-counter trading platforms, and peer-to-peer exchanges. It also called for the government to reinforce the existing ban on digital currency payments and impose strict punishment for those that violate them.
The report even attacked block reward mining, a sector in which Russia is one of the biggest players globally. It claimed that the mining would lead the industry players to need other services such as exchanges, making it difficult to stamp out digital currencies from Russia. Mining would also put a constraint on the country’s energy supply and go against the green agenda that Russia has been on, the bank claimed.
“Crypto mining creates a non-productive electricity expenditure, which undermines the energy supply of residential buildings, social infrastructure and industrial objects, as well as the environmental agenda of the Russian Federation,” part of the report stated.
Russia ranks as the world’s second largest block reward mining hub after the United States.
The move by the central bank was instigated by pressure coming from the Federal Security Service (FSB), Russia’s powerful national security and intelligence agency. According to a Bloomberg report, the FSB is reportedly concerned with the rising funding of opposition factions and media outlets via digital currencies.
The proposal was met with uproar from the Russian digital currency community, the wider tech industry, political leaders, and even high-ranking government officials.
Ivan Chebeskov, the head of the financial policy department at the Ministry of Finance in Russia, is among those opposed to the ban. In an event held last Tuesday, January 25, Chebeskov called on the government to regulate, not ban digital currencies.
“We need to regulate, not ban. Regulation is sufficient to protect our citizens,” he stated during the event, which was held by RBK, a Moscow-based media group.
Chebeskov further revealed that the Finance Ministry has already prepared a set of proposals that it has submitted to the government for approval. These proposals recommend a lighter touch with regulating the industry, he said.
Leonid Volkov, the chief of staff of the leader of opposition in Russia, Alexei Nalvany, is also opposed to the move. Volkov has been the mouthpiece for Nalvany, who was arrested earlier this month and has been behind bars since.
Volkov claimed that the government can’t ban digital currencies in a Telegram post.
“Technically, banning cryptocurrency is the same as banning person-to-person transfers (i.e. it’s impossible),” he said.
He did, however, acknowledge that the government can make it very difficult to deposit fiat to exchanges and other onramps. He believes that Russians would overcome this challenge by turning to intermediaries domiciled in foreign jurisdictions.
“Recommending the imposition a total ban on cryptocurrencies, the Central Bank of the Russian Federation is proposing to throw the baby out with the bathwater. Such a ban will hardly stop bad actors, but it will bury legal Russian projects in this area.”