Russian Duma Deputy Rizvan Kurbanov of the Communist Party of the Russian Federation, has just submitted a bill on the creation of a Crypto-Rouble, a much discussed cryptocurrency that unlike the vast majority of currencies using blockchain technology, would have the full backing of a major government.
Thus far, Venezuela has led the way in the creation of state sanctioned cryptocurrencies. Last year, Venezuela unveiled El Petro, a cryptocurrency whose value is derived from the South American country’s vast oil reserves. For Caracas, El Petro is a way of both avoiding heavy sanctions from the US financial industry, as well as a way to attract non-traditional investment in the country.
Russia is set to join Venezuela by creating a Crypto-Rouble that can be easily converted into physical roubles at any major Russian bank. At present, governments and major financial institutions are locked in an argument between currency traditionalists and currency radicals. Traditionalists claim that cryptocurrencies unduly undermine the value existing central bank issued notes, while also claiming that they make money laundering far less detectable. By contrast, currency radicals have praised the easy to use digital currencies as a means of streamlining international transactions, opening up new investment markets and circumventing the red tape associated with major financial institutions in both the private and public sectors.
South Korea recently considered banning the use of cryptocurrencies, but instead decided to tax crypto-transactions. This leaves Singapore as the most attractive crypto-market in Asia, but Russia is now jumping in on the game, albeit with a state sanctioned crypto.
A state sanctioned cryptocurrency has distinct advantages and disadvantages over cryptos mined in the private sector.
–The likelihood of the coin being backed by tangible state assets–including oil, gas and gold
–Easy convertibility to traditional currencies or metals
–No danger of having the the crypto market shut down by a state regulator
–Possible taxation on basic transactions
–Creeping red tape
–Prohibitions on international transfers.
Under the current proposals, Crypto-Rouble transitions will not be taxed, unless the authorities are suspicious of the activity in question. At such a point, unless someone can prove that the transaction in question is ‘clean’, then a 13% tax will be applied.
While China and Russia have already moved to ban western cyprotos, including the popular Bitcoin, the BRICS group as a whole considered adopting a BRICScoin during the the 2017 BRICS summit in Xiamen, China. Russia led the discussion which itself got many people talking of a BRICScoin as an alternative for small and medium sized transactions throughout the One Belt–One Road trading network and possibly beyond. Such a BRICScoin could further function as a kind of crypto-currency basket which would be backed up by a combination of multi-national assets, in the same way that traditional currency baskets are backed up by the value of several traditional currencies. The most well known currency basket, Special Drawing Rights (SDR) is based on the aggregate value of the US Dollar, Chinese Yuan, Euro, British Pound and Japanese Yen.
While western governments remain on the fence in respect of whether to or how to regulate or ban cryptocurrencies, Russia as a major Eurasian power is leading the way in “regularising” cryptos. The Crypto-Rouble could additionally be a way for investors from western countries to avoid the anti-Russian sanctions imposed by the US and EU. The laws about how sanctions cover cryptocurrencies are not yet clear, but the potential could be very wide and hence attractive to many open minded investors.
The possibilities for the Crypto-Rouble are very wide. For example, if Chinese retailers were able to embrace the technology, it could allow Russians to buy and sell goods on Chinese e-commerce giant Ali Express in Crypto-Roubles. This could be a potentially major testing ground for the Crypto-Rouble as Russians are the number one foreign customer base for Jack Ma’s Ali Express, while such a process could help alleviate Chinese scepticism regarding cryptocurrencies.
If all goes smoothly in the Duma, the bill to create a Crypto-Rouble could be on President Vladimir Putin’s desk by February of 2018. At that point, ordinary Russians could be buying, selling and investing in Crypto-Roubles as soon as Spring of this year.