Russia’s central bank report examines crypto’s place in the financial system

The Central Bank of Russia (CBR) is looking at ways to integrate cryptoassets and blockchain technology into its local financial system amid a raft of global financial sanctions.

In a Telegram post by CBR on Nov. 7, the central bank shared a public consultation report titled “Digital Assets in Russian Federation.”

It considers how the sanctioned state could potentially open up its domestic market to foreign issuers of digital assets — especially those from “friendly countries.”

Other focus areas in the report are digital asset regulation, protection of private investors, digital property rights linked to smart contracts and tokenisation, as well as reformed accounting and tax proposals.

The CBR stated that it strongly supports the “advancement of digital technologies” provided they do not create “uncontrollable” financial or cyber security risks for consumers.

Despite the infancy of blockchain technology, the CBR said the same regulatory rules regarding the issuance and circulation of traditional financial instruments should also apply to digital assets.

The CBR said that in the short term, regulation should focus on protecting investors’ rights, strengthening the rules for taking a digital asset into circulation, ensuring that the issuer is accredited and ensuring that the issuer discloses all relevant information to investors.

The central bank’s message on Telegram, originally written in Russian, said that while the legal framework for digital assets has been established, improved regulation is needed for its continued development.

“Russia has created the necessary legal framework for the issuance and circulation of digital assets […] But so far the market is in the initial phase of development […] and is many times worse than the market for traditional financial instruments. The further development requires improved regulation.”

As for the regulation of smart contracts, the central bank acknowledged that a piece of legislation was already in place – but it suggests that Russian-created smart contracts should be independently audited before they are deployed.

CBR was also positive about the potential for off-chain tokenized assets. However, the bank noted that legislation would need to be put in place to ensure that a “legal connection” exists between the token holder and the token itself.

Related: Russian Officials Approve Use of Crypto for Cross-Border Payments: Report

The report comes as the Russian Ministry of Finance recently approved the use of cryptocurrencies as a cross-border payment method by Russian residents on September 22.

However, the CBR’s 33-page report did not refer to the increase in sanctions that have been imposed on Russia and the crippling effect it has had on the economy – nor did it discuss the Russia-Ukraine war currently taking place in Ukraine.

However, it mentions a separate report it is working on, which focuses on Russia’s new digital central bank currency (CBDC) – the digital ruble – which is expected to be piloted in early 2023.

In August 2022, The CBR stated that it plans to roll out the digital ruble to all Russian-based banks in 2024.