The Central banks of Russia on Thursday have proposed an outright ban on cryptocurrencies. Several countries have taken a similar stance. Although cryptocurrency payments were banned in Russia back in 2020 and a ban on cryptocurrency investments was proposed last month, the Russian bank is now calling for a total ban.

Russia has long talked about how cryptocurrencies could be used to launder cash or terrorism, regardless of the fact that the country granted them legal status in 2020, although cryptocurrencies cannot be used as payments. Russia is worried that cryptocurrency could undermine the financial system.

The central bank released a lengthy report, which states, "The breakneck growth and market value of cryptocurrency is defined primarily by speculative demand for future growth, which creates bubbles.”

Adding that, “Cryptocurrencies also have aspects of financial pyramids, because their price growth is largely supported by demand from new entrants to the market.”

The bank specifically mentioned that financial companies should be prohibited from transacting in cryptocurrencies and mechanisms should be developed for blocking transactions involving cryptocurrencies and fiat currencies.

The central bank also plans to issue its own digital currency. It said the spread of crypto assets would limit its ability to conduct monetary policy. Russians are estimated to have transacted $5 billion in crypto in 2020, so a complete ban on cryptocurrency exchanges would be a significant step backward. The bank said that it will have to work with foreign exchanges to understand how Russians use their cryptocurrencies.

In terms of bitcoin mining, Russia is in the top three after the U.S. and Kazakhstan. Kazakhstan, however, faces a minor setback after unrest earlier this month with tighter regulation. 

According to statistics, Russia accounted for 11.2% of the global "hashrate" in August. A bitcoin "hashrate" is the amount of computing power used by machines connected to the bitcoin network.

This is the latest effort in a global crackdown on cryptocurrencies. Governments from Asia to the United States are concerned that private cryptocurrencies that are highly volatile may weaken their control of monetary and financial systems.

Pavan A

CBW - External Analyst

INDIA