Chinese-owned import-export firm Qifa specializes in trade between China and Russia, a booming sector. According to Reuters, the company is now using the Tether stablecoin for cross border payments because of sanctions affecting bank payments.
It’s possible that Qifa spoke to Reuters to boost the price of its IPO on the Moscow Exchange. However, that benefit could prove short lived. Several Russian companies featured in recent press reports have been the subject of sanctions shortly afterwards.
For instance, Reuters reported in April that the Shanghai branch of Russian bank VTB played a key role in facilitating money transfers between Russia and China. In the latest package of sanctions announced on 12 June, OFAC added VTB Shanghai to its sanction list. Within a week this caused problems with money reaching Chinese suppliers.
The reason for using VTB Shanghai is the threat of sanctions on Chinese banks. Hence, any Chinese banks willing to receive payments are smaller ones, and they conduct significant due diligence to ensure that any goods are not dual use for military purposes.
Meanwhile, the use of Tether as a settlement asset may be illegal in both countries. Reuters classed Tether as a Digital Financial Asset. That’s not the case.
Digital Financial Assets
Digital Financial Assets (DFAs) are a specific class of Russian digital assets, including tokenized gold, other commodities and factored invoices. There’s a short list of firms that operate platforms approved to issue DFA tokens, and most of them have been sanctioned. Not only does Tether not run an approved DFA issuing platform, but stablecoins are not approved DFA assets.
Originally Russian legislation banned the use of DFAs for payment, but it recently passed a new law allowing them to be used for cross border payments, precisely to skirt sanctions. Less than two weeks later more DFA issuers were sanctioned alongside some Russian cryptocurrency firms. That means only those comfortable dealing with sanctioned entities would accept them. There are also practical hurdles we have previously explored.
Tether would be classed as a cryptocurrency rather than a DFA.
Russia is working on legislation to support the use of cryptocurrencies for cross border payments. Even the central bank governor has agreed it’s a practical move, despite her misgivings about crypto. As of today, using Tether may not be legal in Russia, but the Russians would most likely turn a blind eye.
It’s far less clear that’s the case in China where the use of stablecoins such as Tether is not permitted.
