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 crypto assets and blockchain technology into its local financial system amid a pile-on of global financial sanctions.

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

It considers how the sanction-hit state may possibly open up its domestic market to foreign issuers of digital assets — particularly those from “friendly countries.”

Other areas of focus in the report are digital asset regulation, retail investor protections, digital property rights related to smart contracts and tokenization, as well as reformed accounting and taxation proposals.

The CBR stated that it strongly supports the “further development of digital technologies” provided they don’t create “uncontrollable” financial or cybersecurity risks for consumers.

Despite the nascency of blockchain technology, CBR said the same regulatory rules concerning the issuance and circulation of traditional financial instruments should also extend to digital assets.

The CBR said regulation over the short term should focus on protecting investor rights, strengthen rules for admitting a digital asset into circulation, ensuring the issuer is accredited and ensuring the issuer discloses all relevant information to investors.

The Central Bank’s message on Telegram, originally written in Russian, said while the legal framework for digital assets has been created, improved regulation is required 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 at the initial stage of its development […] and is many times inferior to the market of traditional financial instruments. Its further development requires improved regulation.”

As for smart contract regulation, the central bank acknowledged that a legislative framework was already in effect — however, it proposes that Russian-created smart contracts be independently audited before being deployed.

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

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 Sept. 22.

However, the CBR’s 33-page report made no reference to the increase in sanctions that have been imposed on Russia and the crippling effect it has had on its economy — nor did it discuss the Russia-Ukraine War that is currently taking place in Ukraine.

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

In Aug. 2022, The CBR stated that they plan on rolling out the digital ruble to all Russian-based banks in 2024.