Autor Cointelegraph By Travis Jones

Fitting the bill: US Congress eyes e-cash as an alternative to CBDC

Fitting the bill: US Congress eyes e-cash as an alternative to CBDC

Uverejnil používateľ | apr 15, 2022 |

On March 11, United States President Joe Biden issued an executive order in which he encouraged the Federal Reserve to continue research on a prospective U.S. central bank digital currency, or CBDC.The order emphasized that the market capitalization of digital assets had surpassed $3 trillion in November — with Bitcoin (BTC) representing more than half of the total value of all cryptocurrency and peaking at over $60,000 — up from just $14 billion five years prior. For comparison’s sake, the U.S. money supply (M1) in the same month was $20.345 trillion.Stephen Lynch, a member of Congress who chairs the Task Force on Financial Technology, introduced the Electronic Currency and Secure Hardware Act on March 28, which would develop “an electronic version of the U.S. Dollar for use by the American public.” How does this project fit into the existing U.S. CBDC frameworks? Is Lynch’s e-cash a CBDC or not?Curiously, the specialists tasked with authoring the concept claim it isn’t a true CBDC because it would be issued by the U.S. Treasury rather than the U.S. Federal Reserve, the central bank system.Rohan Grey, an assistant law professor at Willamette University’s College of Law who helped draft Lynch’s bill, said in an interview that the Fed doesn’t have the statutory authority to create a CBDC or the capacity to maintain the retail accounts that would be required for it. Instead, he described the digital dollar as something replicating the privacy, anonymity and transactional freedom reflecting the properties of physical cash.He noted that it would neither use a centralized ledger (like most proposed CBDCs) nor a distributed ledger (like crypto) and maintain its security and integrity through its hardware. According to Grey, beyond that, giving the Fed the power to conduct the electronic surveillance of digital currency isn’t a good idea because of the potential for infringing on users’ privacy. He positioned e-cash as a third alternative beyond account-based CBDCs and crypto, which addresses concerns related to privacy and surveillance.Isn’t online banking enough?Last summer, crypto critic Senator Elizabeth Warren argued that there was no need for digital money because U.S. money is already accessed digitally. Lynch’s proposal reflects a different perspective in the Democratic party. What attracts him?In Europe, China and other parts of the world, it’s common to transfer money via online apps or with debit card payments. While these exist in the U.S., they complement an older “legacy” system of paper checks. While the use of personal paper checks by individuals has declined significantly over the past 20 years, the U.S. government and U.S. businesses still use them to send money. This makes things difficult for the millions of adults who are “unbanked” or “underbanked”: those who lack a bank account and commonly rely on check-cashing services, which charge high rates. Many consider these extra expenses too high or disproportionately high, given that these services are considered the most essential by the least economically resilient segment of the population. Many U.S. politicians are worried about economic inequality issues, especially since the 2008 financial crisis and more recently in the wake of the 2020 riots. Additionally, when Americans use credit cards or digital platforms to make payments, retailers must pay third-party fees, which adversely affects the cash-based economies of poorer and immigrant-dominated communities. Small businesses, landlords and individuals providing services often must rely on paper checks.Sending paper checks also involves unacceptable lag times involved in their transfer, receipt and processing. The number of banks in the U.S. is in the thousands, while in Canada, just five account for most residents. This means that bank-to-bank transfer costs associated with sending money are essentially unavoidable.Normally, the U.S. Bureau of Engraving and Printing (which is under the Department of the Treasury) prints banknotes that are then circulated by the U.S. Federal Reserve. All U.S. banknotes are called Federal Reserve Notes. The proposed digital money would also enter circulation under the Department of the Treasury, but it’s unclear what role the Federal Reserve would play. The proposed money would be introduced on an experimental basis, so there would likely be a cap on the issuance, ensuring that it wouldn’t have much of an effect on M1.The Fed’s takeWhile the Treasury is under the purview of the executive branch of the government, the Federal Reserve has some degree of independence. Federal Reserve Chair Jerome Powell is the chairman of the board of governors, who are appointed by the president and confirmed by the Senate much like judges, except that judges may be appointed for life while a Fed governor holds their position for 14 years.After the Fed issued its own white paper on the issuance of a CBDC in January, not all of the governors were keen on the idea. Powell argued last summer for caution and looked to Congress for new legislation regarding a CBDC.One of the Fed governors, Randal Quarles — vice chair for supervision — called the benefits of a CBDC “unclear” last year and the risks “significant and concrete.”“Bitcoin and its ilk will, accordingly, almost certainly remain a risky and speculative investment rather than a revolutionary means of payment, and they are therefore highly unlikely to affect the role of the U.S. dollar or require a response with a CBDC,” Quarles said in an address to the Utah Bankers Association, later clarifying that this was his opinion rather than that of the Fed itself.Interestingly, Powell’s approach to regulating stablecoins was more proactive.“We have a pretty strong regulatory framework around bank deposits, for example, or money market funds. That doesn’t exist really for stablecoins,” Powell said in a congressional hearing last July. “If they are going to be a significant part of the payments universe — which we don’t think crypto assets will be, but stablecoins might be — then we need an appropriate regulatory framework, which, frankly, we don’t have.”On March 31, Representative Trey Hollingsworth and Senator Bill Hagerty proposed the Stablecoin Transparency Act, which would require stablecoins “to be backed by government securities with maturities less than 12 months or domestic dollars while requiring stablecoin issuers to publicly release audited reports of reserves executed by third-party auditors,” according to a financial services newsletter.All debts, public and privateOne key difference between prospective e-cash and the U.S. dollar is that the latter is universally accepted. If e-cash mirrors the price of the dollar, a lot of people simply won’t take it, preferring to get old-fashioned USD. Historically, such pegs have left central banks at the mercy of speculators.During the American Civil War, U.S. fiat currency faced its first hurdle when people flatly preferred gold and silver coins to printed money, resulting in price fluctuations. Eventually, the U.S. returned to gold and silver coinage.Over a century later, the French government under Charles de Gaulle succeeded in breaking the fixed $35-per-ounce exchange rate between U.S. dollars and gold established at Bretton Woods in the aftermath of World War II, and in the 1990s, billionaire investor George Soros “broke the Bank of England” by betting big on the United Kingdom’s inability to maintain Sterling’s peg to European currencies in the lead-up to the introduction of the euro.This partly helps explain why legislators advocating e-cash are so interested in making it as much like existing U.S. money in circulation as possible.Apples and orangesThe wide-scale use of e-cash could necessitate a complete shift in the nature of financial regulation in the U.S. if it gets approval and passes the experimental stage. Importantly, it would sidestep the need for traditional retail banking, making the storage and transfer of funds a public service rather than a fee-based service. Federal monetary policy was built around the management of the economy through commercial banks, which helps to explain the hesitancy of certain central bankers like Quarles.A lot has to do with the volume of e-cash being generated. Central bankers do have one good point: Stablecoins have enhanced the transactional value of crypto for those whose primary interest is in sending cash rather than investing. Legislators have much to lose and little to gain if they risk introducing a national e-currency that doesn’t work, especially in an inflationary economy.

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Warren’s battle to curtail crypto gets boost from Ukraine conflict

Warren’s battle to curtail crypto gets boost from Ukraine conflict

Uverejnil používateľ | apr 1, 2022 |

In a July 2021 interview, Massachusetts Senator Elizabeth Warren likened crypto regulation to the drug regulation initiatives of a century ago, which she claimed put an end to the sale of “snake oil” and laid the basis for the creation of the modern drug industry. This reflected her earlier statements about the digital currency market resembling the “Wild West,” which makes it a poor investment as well as an “environmental disaster.” With her latest bill in the Senate pipeline targeting Russian actors’ potential use of crypto to circumvent United States sanctions, it is fair to ask: Is the military conflict in Ukraine merely an excuse for Warren to act on her long-standing distaste for digital assets?From the ivory tower to Capitol HillSenator Warren is not a typical Democrat, having been a conservative for much of her life. The general idea behind a lot of the ideas she presents hearkens back to the progressive era, when America’s traditional middle class found itself pitted against the well-lobbied interests of big business and turned to regulation to formalize the national economy.As a Harvard Law School bankruptcy professor, she wrote several books that established her as a champion of the middle class and new financial regulation, and her ideas gained resonance during the subprime mortgage crisis that would snowball into the 2008 financial crisis. That year, the U.S. Senate turned to Warren to chair the Congressional Oversight Panel, which oversaw the implementation of the Emergency Economic Stabilization Act, the infamous $700 million bailout package. This set the stage for her entry into politics several short years later when she became a Massachusetts senator at age 63.“As a member of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren works on legislation related to financial services and the economy, housing, urban development, and other issues, and participates in oversight of federal regulatory agencies,” according to her Senate website.Only business regulation, nothing personalOne important takeaway from a review of Senator Warren’s resume is that the champion of financial regulation and tireless defender of the U.S. middle class has never really been an anti-Russia hawk. However, this seemingly changed when Russian President Vladimir Putin launched his “special military operation” in Ukraine on Feb. 24 and the U.S. and its partners took punitive steps targeting the Russian economy.The fact that Warren was able to deliver a comprehensive set of regulations aimed at the crypto industry within weeks of the launch of the Ukraine conflict underscores that she had likely drafted them long in advance and had been waiting for the appropriate time to reach across the aisle for Republican endorsement.Prior to former U.S. President Donald Trump’s arrival on the Republican political scene, antipathy toward Russia wasn’t considered partisan or limited to the Democratic Party. A review of the Senate’s anti-Russia rhetoric, and who signed what documents, reveals that it takes three forms.The first is unanimous condemnations of Russia, which usually happen immediately after Russia makes a major political move against a foreign power such as Ukraine or Georgia.The second type is tied to allegations that Putin meddled in the 2016 U.S. presidential election in order to ensure Trump’s victory. While most Republicans dismiss the allegation, it has continued to be a rallying cry for many Democrats. In his investigation into the matter, former Federal Bureau of Investigation Director Robert Mueller found that Russia carried out a systematic effort to influence the election in favor of Trump, but he stopped short of determining whether the efforts were actually successful.On the other hand, several Republican hawks are decidedly anti-Russia, and these Senators may prove instrumental in the passage of Warren’s legislation. While John McCain, arguably the most famous anti-Russia hawk, passed away in 2018, there are other, lesser-known ones.In December 2016, after Trump’s election, Senators Rob Portman of Ohio and Dick Durbin of Illinois, co-chairs of the Senate Ukraine Caucus, led a bipartisan group of 12 Republicans and 15 Democrats to call on then-President-elect Trump to continue America’s “tradition of support for the people of Ukraine in the face of Russian aggression.” While most of those senators are still in office, Warren was not among the signatories.In March 2022, the Senate condemned Russia on two occasions. Both times, the resolution’s sponsor was Senator Lindsey Graham, the most ardent Republican anti-Russia hawk. While Warren voted for the resolutions, she wasn’t among their many cosponsors.Civil forfeiture: An ugly precedentThere is a precedent for what Warren seeks to do to rein in crypto. For over two decades, U.S. federal officials have been seizing undeclared currency from people at airports traveling to or from other countries. The official justification for the practice is that it curtails the sale of illicit narcotics. If officials find more than $10,000 in undeclared cash on someone, they are authorized to simply take it, and getting it back can be a legal nightmare.According to a July 2020 report from the civil liberties law firm Institute for Justice, “Law enforcement agencies routinely seize currency from travelers at airports nationwide using civil forfeiture — a legal process that allows agencies to take and keep property without ever charging owners with a crime, let alone securing a conviction.”The sheer volume of cash being taken at U.S. airports is mind-boggling: more than $2 billion between 2000 and 2016. However, the report notes that 69% of the time, there were no arrests made.“The theory behind civil forfeiture is that by going after drug dealers’ money, you hit them where it hurts the most by taking away their proceeds,” Jennifer McDonald, a senior research analyst at the Institute for Justice who authored the report, told NPR in a July 2020 interview. “It’s not effective. There’s research that shows that civil forfeiture has no relationship with reducing crime at all, or drugs for that matter.”Warren’s legislation also resembles the 2001 USA PATRIOT Act, which enhanced both the surveillance and regulation of international banking, supposedly in order to thwart the financing of terrorist activity. Title III prevents U.S. entities from working with offshore shell banks that are unaffiliated with a bank on U.S. soil, ostensibly in order to control suspicious activity abroad. The law mandated that banks investigate accounts owned by political figures suspected of past corruption.It’s notable that while many went on to later condemn the PATRIOT Act, its initial reception was positive among both Republicans and Democrats due to the sense of urgency that prevailed following the terror attacks of Sept. 11, 2001.Excuse to target crypto?Given her history, it’s possible — perhaps even likely — that Senator Warren’s proposal is simply an excuse to target crypto, using Russia as a way to gain bipartisan support. Moreover, Warren’s efforts may be no more effective at its goals than civil forfeiture is at targeting drug trafficking. According to Jake Chervinsky, head of policy at the Blockchain Association, existing legislation targeting Russian entities is sufficient because crypto markets are too small and transparent to rescue the effectively blockaded Russian economy.Transactions involving Bitcoin (BTC) and the Russian ruble lack liquidity. Chervinsky also noted that “To make a meaningful difference, Russian SDNs [Specially Designated Nationals] would have to convert billions of dollars worth of rubles into crypto” and pointed out that Russia is already cut off from most of the crypto industry. The nation may not even need to turn to crypto, given the willingness of China and India to pursue de-dollarization in trade, a process that has been in the works for years.Senator Warren’s push for new crypto regulations thus looks like it may simply be a thinly veiled attack on the industry. In an evenly split Senate, her use of heavily sanctioned Russia looks like a potential excuse to drum up bipartisan support for more restrictive measures.

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Green ‘light:’ The EU’s approach to crypto balances eco-values with regulatory relevance

Green ‘light:’ The EU’s approach to crypto balances eco-values with regulatory relevance

Uverejnil používateľ | mar 24, 2022 |

Last week, Bitcoin (BTC) dodged a regulatory bullet in the European Union when proposed cryptocurrency legislation was altered to not include a ban on proof-of-work- (PoW)-based crypto assets. Policymakers had raised a number of concerns about the relative anonymity of crypto transactions and their environmental impact. Some experts including Tim Frost, founder and CEO of Yield App, believe that the “climate change” angle reflects a hidden attempt to ban Bitcoin. But, why? The proposed EU regulation on Markets in Crypto Assets (MiCA) can be seen as a hybrid approach, which sometimes treats crypto assets as securities and at other times treats them as currency. This has left legislators divided, as the European Council, composed of representatives of the respective countries, believes the European Banking Authority (EBA) should be the new crypto watchdog, while the European Parliament would hand that role to the European Securities and Markets Authority (ESMA).Green protectionism and green deals While an outright ban on proof-of-work, which would have hobbled Bitcoin, has been avoided, the environmental rhetoric surrounding the EU push for regulation remains. This reflects a trend towards “green protectionism” in EU regulation: The EU is attempting to protect its market and institutions (in this case, its currency, which is less than a decade older than BTC) using environmental concerns as a rallying cry. This approach has already attracted the ire of the EU’s trade partners. In 2019, shortly after European Commission President Ursula von der Leyen assumed office, the EU officially declared its “Green Deal” goal of having net-zero greenhouse gas emissions by 2050. This followed a wave of greens winning in the European Parliament earlier that year. The idea of a “Green Deal” had originally been promoted by the United States Democratic Party but was opposed by former President Donald Trump, which prompted Europeans to borrow the concept. The EU intends to pursue this goal by shifting to renewable energy sources for electricity generation, increasing housing energy efficiency and creating “smart infrastructure.” The price tag for the program was set as one trillion euros in the first decade. According to the Valdai Club, “The symbolic significance is as follows: the EU declares itself a global leader in promoting the climate agenda and sets new standards for cooperation between the state, business and society in countering climate change.”Green — with envy? Bitcoin vs. euroThe European banking system has faced several major crises since the introduction of the euro as a common currency within the eurozone in 1999, notably the financial crisis in 2008, the 2011 euro sovereign debt crisis and the COVID crisis. Pervasive problems such as negative inflation and difficulties in coordinating monetary policy have often left the bloc relying on several stronger economies such as Germany to bail out weaker states such as Portugal, Italy, Greece and Spain in times of need. This has elicited questions about the long-term sustainability of the currency.To make matters worse, austerity mandates have often empowered populist politicians such as Italy’s Five Star party to threaten withdrawal from the euro bloc. This has weakened Brussels’ aspirations to sell the euro as an alternative “world reserve currency” to the U.S. dollar. While trade in euros dwarfs the global volume of cryptocurrency transactions by several orders of magnitude, it’s understandable that eurocrats would want to avoid competition with a liquid medium of exchange. Europe’s financial targetsAccording to Tim Frost, founder and CEO of fintech firm Yield App, “there has been little work undertaken to truly understand the actual environmental impact of mining cryptocurrencies, not least compared to the oil and gas industry that the EU and other global governments are still very happy to support through kickbacks and incentives.” He adds that “if regulators were seriously concerned about the environmental impact of industries, then cryptocurrency would surely be the last industry to be considered.” Frost voiced suspicion about singling out of cryptocurrency in the environmental debate, which he said was “somewhat lopsided, if not suspicious,” given that the proof-of-work system originally targeted by legislators was an essential part of the architecture of Bitcoin, which accounts for the lion’s share of the cryptocurrency economy.It can be said, however, that both the euro and cryptocurrency possess a unique set of political risks in that they are not tied to traditional states engaging in traditional monetary policy. EU regulators have already been accused of trying to “punish” the United Kingdom for Brexit as a warning sign to other potential leavers, so it’s not unfair to argue that attempts to hobble crypto could be driven more by self-interest than by environmental notions. Brussels as an exporter of regulatory standards Setting new rules involving trade is also seen as a win for European lawmakers in and of itself. During Donald Trump’s time in office, many opined that the U.S. could no longer be seen as “the leader of the free world” in terms of policy initiatives and was focusing on “America first.”The United States, in the eyes of Europeans, had turned its back on global regulatory initiatives. The most poignant reflection of this was Washington D.C.’s decision to pull out of the Paris Agreement on climate change. Trump’s backtracking on the Iran deal was another indicator that the U.S. had switched to favoring unilateral policymaking and was willing to “weaponize” its role in the global economy as well as that of the dollar.This left the EU with a window of opportunity to take a leadership role. While international formats such as the G-20 and Organization for Economic Co-operation and Development (OECD) had larger aggregate economies, they lacked the EU’s expertise as a consensus-based supranational union capable of establishing and maintaining standards. In the late 1990s, when the internet and global banking were first coming into their own, the OECD had taken the lead in introducing new global regulations to prevent companies from utilizing low-tax jurisdictions. In 2000, the OECD introduced a “blacklist” of uncooperative tax havens and identified 31 such jurisdictions by 2002. At the time, the OECD countries accounted for the lion’s share of the global economy. These were able to force all of them to implement its standards of transparency and exchange of information.Taken together, these forces underlie what on the surface looks as the push to emphasize environmental concerns the EU’s emerging crypto regulation

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Russia’s Central Bank Goes to War. Is Cryptocurrency a Friend or Foe?

Russia’s Central Bank Goes to War. Is Cryptocurrency a Friend or Foe?

Uverejnil používateľ | mar 17, 2022 |

In January 2022, the Central Bank of Russia (CBR) proposed a number of measures aimed at curtailing the country’s cryptocurrency market, which included a blanket ban on the use and mining of all cryptocurrencies. It pointed out risks posed by the volatile nature of cryptocurrencies to the financial stability of the country, the extensive use of crypto in illegal activity and the energy costs involved in crypto mining. However, the utility of blockchain technology didn’t escape the CBR. The following month, it announced that it had started the pilot stage of the digital ruble, its planned central bank digital currency (CBDC).Following the Russian legislature’s decision to recognize the Ukrainian separatist states of Lugansk and Donetsk, however, the majority of Russian Duma MPs were slapped with financial sanctions by the European Union. In early March, in response to the events in Ukraine, the CBR was also hit with sanctions. It became apparent that further sanctions by the EU, United States and other Organisation for Economic Co-operation and Development (OECD) nations were likely to arise.Sanctions-induced pivotWhen formerly legal financial transactions with the West were criminalized, speculations as to the future of cryptocurrency in Russia abounded. According to Stanislav Tkachenko, a professor of international affairs and economics at St. Petersburg State University who has written extensively about monetary regulation, there had already been interest among policymakers in the future promotion of both the CBDC and existing cryptocurrencies.Tkachenko pointed out that Russia was looking at how China was approaching the introduction of a state digital currency and believed that Russia would simply copy what China was doing. He noted that the Russian switch to partnering with China in bilateral trade would probably lead to higher transaction costs, as the commodities Russia sells are most commonly priced in dollars in international markets, and China prefers the exclusive use of renminbi for its own market. Traditional transactions would have to take place in rubles, dollars and Chinese yuan.Tkachenko was optimistic about the prospects for cryptocurrency mining in the immediate future, as global sentiment toward Russian energy has soured, resulting in both sanctions and proposed additional sanctions. These, he explained, were driving global energy prices up but also left Russian energy producers without a global market to cater to. This could lead to both a more lenient attitude toward crypto mining within Russia and further attempts to restrict Russian access to the cryptocurrency market abroad.CBDC problemsAny central bank digital currency has several major drawbacks, and a few more can be added in Russia’s case. First, the utility of anonymous transactions is lost. While the potential use of anonymous transactions for money laundering and the financing of terrorism has worried CBR regulators for decades, a CBDC would inevitably be targeted.In the U.S. and the EU, operations carried out by six major Russian banks have been blocked: VTB, Novikombank, Sovcombank, Otkritie, PSB and Bank Rossiya. It is now impossible to transfer dollars and euros from their accounts to any country in the world, and the Visa and Mastercard cards issued by any Russian bank do not work abroad. However, the elimination of dealings with Russian banks hurts existing foreign business, which is something that couldn’t be said for a new state-issued cryptocurrency.Another is that the Russian “brand” has fallen in value elsewhere in the world, with crypto exchanges being compelled to shut down coin wallets held by Russian individuals. While regulators have long feared that Bitcoin (BTC) would be used to pay for illegal darknet transactions, the association of the CBDC with Russia would render all usage suspect.In 2017, President Nicolas Maduro announced the creation of the state-backed petro cryptocurrency in sanctioned-hit Venezuela, hoping to boost the nation’s spiraling economy. However, it has had little practical application: Venezuela used it in 2019 to make small payments to retirees and often uses it to price services or fines that are ultimately paid in the local currency. Cryptocurrency is usually thought of as both a speculative instrument and a medium of exchange. On these two fronts, the petro has fallen flat.Digital assets’ wartime utilityOne key utility of a potential CBDC is that it helps avert some of the vulnerabilities of the existing Russian banking framework in the context of wartime. If anything happens to Sberbank, VTB or any of the other banks, it would be difficult for Russians to transfer money via their respective banking apps, which are now used throughout Russia.However, it can be expected that much of the world would scoff at a Russian CBDC, much as they scoffed at the release of the Venezuelan petro, given the government’s loan defaults and inability to access frozen assets abroad.It would be downright foolish for Russia to limit itself to a CBDC without exploring crypto mining options. While the size of the Russian economy wouldn’t allow for mining to act as a stand-in for regular energy exports, the use of excess electricity for mining could help compensate for inaccessible foreign reserves.The Russian government has the option of pursuing mining opportunities without outright liberalization. Blockchain mining could be done by state-run energy companies but banned among ordinary citizens, in much the same way that the Bahamas has gambling opportunities for foreign tourists, but Bahamian citizens are forbidden from taking part. This would have the added benefit of allowing electrical energy producers to balance cryptocurrency production with the use of the electrical grid by ordinary consumers.However, such a practice could feed into growing concerns in the West that Russia could turn to crypto as a means of sidestepping punitive sanctions.The eyes of Russia’s financial policymakers were on Beijing last month when it released the digital yuan, dubbed the e-CNY, for Olympians and visitors during the Winter Games. However, this was only the digital yuan’s international debut. There had already been more than a year of pilot runs in about a dozen regions of the country, involving more than 260 million people with e-CNY accounts by the end of 2021. Evidently, China’s CBDC is doing far better than Venezuela’s, as the volume of total digital transactions reached nearly 90 billion yuan, or $14 billion, according to the bank.However, with the world’s second-largest economy, China has no problems generating such transaction volumes — it’s technically only $10 per person in what has already effectively become a cashless society. And, while China has faced trade restrictions, it has yet to be struck with any crippling sanctions like those facing Russia and Venezuela.Pressure from the westLast week, U.S. President Joe Biden signed an executive order that directs U.S. federal agencies to study and craft a comprehensive plan that would unify the government’s oversight of the cryptocurrency market. The very fact that U.S. financial regulators are seeking to limit Russia’s access to the world’s three trillion dollar cryptocurrency market may compel Russian lawmakers to do just the opposite.The chief concern in the short term among policymakers, however, is for the health of the Russian financial system amid a shock decoupling from the West. Most of Russia’s $630 billion in foreign reserves, dubbed Putin’s “war chest” in the Western press, have been frozen, prompting fears of a default on Russia’s foreign-currency-denominated debt. As many surmise that the worst may be yet to come for the ruble, the CBR has been forced to introduce capital controls in order to prevent a general panic.While Russia’s regulatory authorities may be interested in keeping money in the country, ultimately, they are also responsible for ensuring that international trade may continue despite the West’s traditional control of most of the world’s financial markets. As a result, they must both prevent immediate capital flight while facilitating Russia’s continued access to global markets. In order to prevent Moscow from relying nearly exclusively on Beijing for this access, it is highly likely that in the medium term, Russian regulators will act to facilitate access to cryptocurrency rather than eliminate it.

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