Russia to regulate rather than outlaw cryptocurrencies

Russian interest in digital currencies grew after President Vladimir Putin signalled his approval. This is a U-turn from last year when the Finance Ministry proposed jailing people for using such currencies.
Russian interest in digital currencies grew after President Vladimir Putin signalled his approval. This is a U-turn from last year when the Finance Ministry proposed jailing people for using such currencies.PHOTO: BLOOMBERG

MOSCOW • Russia is drawing up rules on how to conduct initial coin offerings (ICOs), breaking ranks with China, after President Vladimir Putin signalled his approval for digital currencies.

While China slapped a blanket ban on ICOs this month, the government in Moscow plans to regulate cryptocurrencies like securities rather than outlawing them, Finance Minister Anton Siluanov told reporters last Friday.

That marks a full reversal from his ministry's proposal last year to punish people who use digital currencies with up to seven years in jail.

Appetite for the new instruments has been growing ever since Mr Putin met, in June, the founder of the world's second-largest cryptocurrency after bitcoin and gave his blessing for Russia to develop blockchain, the technology underlying bitcoin.

A consortium of lenders, including Sberbank PJSC, is now seeking to use the technology to cut costs, while a presidential aide last month announced plans for an ICO.

By contrast, China's central bank has ordered all fund-raising efforts related to ICOs - which have raised at least US$1.25 billion (S$1.7 billion) globally so far - halted immediately, a decision that may have an impact on investors who had participated in at least 65 of the projects by mid-July.

Chinese regulators have also decided to close domestic cryptocurrency trading platforms, Caixin reported, citing unidentified people close to the nation's Internet financial risk prevention team.

Mr Siluanov told reporters: "The state certainly understands that cryptocurrencies are a reality; there is no point in prohibiting them. It is possible to regulate them, so the Finance Ministry will draw up a Bill by the end of the year."

That reality was not always apparent in Russia. Before Mr Putin's meeting with Mr Vitalik Buterin, the Russian-Canadian founder of ethereum, the legal status of cryptocurrencies was unclear.

Since then, a company co-owned by the President's Internet ombudsman, Mr Dmitry Marinichev, has announced a plan to raise US$100 million in an ICO to fund a domestic digital currency-mining operation.

Sberbank chief executive Herman Gref has put the weight of Russia's biggest bank behind a modified ethereum protocol dubbed masterchain to make inter-bank money transfers safer and faster.

Not all Russian officials are believers, however. Bank of Russia Governor Elvira Nabiullina warned last Friday at the same forum that there was "gold fever" surrounding digital currencies, and said that they should not be used as a surrogate for money.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 12, 2017, with the headline 'Russia to regulate rather than outlaw cryptocurrencies'. Print Edition | Subscribe