Introduction
The State of Duma adopted the ‘On digital financial assets, digital currency and on amendments to certain legislative acts of the Russian Federation’ bearing no. 419059-7 (‘the Bill’) in the second reading on July 21, 2020. The Bill will become effective in 2021, however, it is yet to be assented by the Federal Council and the President to become a law.
Defining digital currency
As per the Bill, the Central Bank of Russia will be in charge to determine the characteristics of digital financial assets (“DFA”). The Bill reportedly also defines digital currency as collection of electronic data that is neither the international monetary unit not the monetary unit if a foreign state or the Russian Federation. A number of concepts such as ‘tokens’ and ‘mining’ have been removed before passing the Bill in the second reading. However, it has been reported by the Russian media that a separate legislation ‘On Digital Currency’ will be passed to define a proper framework for cryptocurrencies. The Bill prohibits the use of digital currencies as a currency however, it can be treated as a mode of payment and a store of value. Therefore, the businesses will not be able to use cryptocurrencies such as bitcoins for conducting transactions.
Issuance and exchange of digital currencies
Further, the Bill clarifies that the DFAs can be issued by any legal entity whether commercial or non-commercial, regardless of their residency. However, the transactions in respect of the DFAs can only be made through recognised banks, stock exchanges and any other legal entity which meets certain criteria as specified. Any possession, transfer and receipt of DFA shall be allowed upon a declaration to that effect.
Stablecoins
Stablecoins are often pegged to fiat currencies such as the US dollar and are therefore not as volatile in nature. Stablecoins operate independently and are not controlled by the central bank or the government. Facebook’s Libra is also going to be introduced as a stablecoin. Businesses and individuals will be able to issue and use stablecoins and they can be used to buy other assets including those issued abroad or convert it back into the local currency.
BlockSuits Comments
The Bank of Russia has shown negative sentiments towards cryptocurrencies and considers it adverse from the financial stability and money laundering perspective. However, the Ministry of Finance introduced the Bill precisely from the perspective of addressing those concerns. The Bill passed in the second reading is much different from the Bill introduced in 2018. The process of passing the Bill without going into the intricacies was perhaps fast-tracked due to the increase in cryptocurrencies enthusiasm during the lockdown. The Bill is definitely a welcome move from a country which has contemplated banning cryptocurrencies altogether. Further, as per the objective stated in the press release, it is clear that it is looking to attract investments and a process to digitise the traditional financial instruments while also saving the consumers from various pyramid schemes.
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