Russia defies Western sanctions with crypto payments

The Kremlin is now encouraging Russian businesses to use cryptocurrency and other digital assets to complete payment transactions with foreign companies – all to avoid Western sanctions.

The Central Bank of Russia told businesses on Wednesday they should be using "multiple choice solutions" to facilitate payment transactions with foreign partners. Bank officials say using alternate payment solutions is a good way to sidestep sanctions imposed on Moscow by Western nations over the war in Ukraine.

Those 'choice solutions' include cryptocurrencies and other digital assets, such as Bitcoin, NFTs, and asset-backed tokens.

The directives appear to be a response to recent efforts by Western nations to ramp up sanctions on major Russian financial institutions. Insiders say the newly enforced sanctions have led to major setbacks in the Russian economy, triggering the Federation to come up with alternate ways to circumvent the restrictions.

Recently targeted institutions have included the Moscow Stock Exchange, as well as the nation's alternative to the SWIFT payment system – the SPFS system, Reuters reported.

Elvira Nabiullina, Governor of the Central Bank of the Russian Federation, has said that payment problems are one of the key challenges facing the Russian economy right now.

"New financial technology creates opportunities for schemes which did not exist before. This is why we softened our stance on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments," Nabiullina said at the Financial Congress held by the Bank of Russia in St.Petersburg on Wednesday.

"Different alternatives are being discussed. Businesses have become very flexible, and very enterprising. They find ways to solve this and often don’t even share them with us," she said. The Governor added that Russia’s business partners across the globe have been under "tremendous pressure" from the recent sanctions.

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Elvira Nabiullina, head of the Russian central bank, let the Russians know that everything is bad with the country's economy. He argues that the Russian economy now has three strong constraints: a lack of labor, a lack of access to Western technologies, and a lack… pic.twitter.com/emgbE8tcOQ

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Nabiullina believes that because of the lack of alternative payment systems, it is the right time to adopt a new global payment system, one that does not involve Western institutions. Nabiullina said she expects things will gradually move in that direction given the current world climate towards Russia.

To note, payment transactions with BRIC nations such as China, the United Arab Emirates, and Turkey have been reported running smoothly, as those countries have not imposed any sanctions on the Kremlin.

In anticipation of the evolving payment types, nations that commonly do business with Russia – such as the "BRICS" group members (Brazil, Russia, India, China, South Africa, and now Iran, Egypt, Ethiopia, and the United Arab Emirates) are currently creating their own payment system based on blockchain and digital technologies, according to reports by the Russian news agency TASS.

Nabiullina said Russia and countries from the BRICS group were already in discussions over the new venture, known as the "BRICS Bridge" – a payments system designed to bridge the financial systems of member countries.

Still, Nabiullina pointed out that discussions were difficult and it would take time to create such a system.

Russia’s second-largest lender, VTB, recently had sanctions imposed on its Shanghai branch. VTB's head, Andrei Kostin, sat alongside Nabiullina at the conference and declared that any information about how the system was created and what technology was used in the BRICS international payment system should be made illegal and considered a "state secret" due to its sensitivity.

"I can see very well that right now somewhere at the US embassy, a second secretary is sitting and writing down every public statement of ours. Maybe he is even sitting here. Whatever steps we take, we can see that the reaction [from Western countries] is very quick," Kostin said.