This week Vladimir Putin signed a law that allows the use of digital financial assets (DFAs) for foreign trade payments. Russia’s concept of DFAs includes tokenized assets and financial instruments issued through central bank regulated institutions.
When DFAs were first introduced, tokenizing precious metals proved popular. So far digital platforms have supported the issuance of more than 350 instruments, including bonds, trade finance, and a variety of other offerings.
The central bank wanted to ensure these assets didn’t start replacing the ruble, so there’s a ban on DFAs for payments. That persists domestically, but to sidestep sanctions in response to Russia’s invasion of Ukraine, they’re looking for alternative settlement avenues.
The legislation changed the definition of certain currency transactions to include digital rights such as DFAs. Plus, the central bank can establish the conditions for using DFAs for payment.
DFAs as a way of hiding from sanctions
The Bank of Russia is a stickler for anti-money laundering. However, in a statement, Russia’s Federal Assembly said, “Due to existing sanctions risks, the Federal Law excludes the requirement to provide information about the beneficial owner of the person who issued digital financial assets.”
The new law also allows the transfer of insurance contracts, non-state pensions and long term savings via digital platforms. Typically, these sorts of assets are not transferrable.
Last week when the law was passed by the State Duma, the Committee Chair for Financial Markets, Anatoly Aksakov said, “Today, such payments go through the banking system, and accordingly they are visible to enemies who put pressure on banks, including from friendly countries. The bill will allow it to bypass the banking system, so external influence will be minimized.”
A recent report by the rating agency ACRA concluded that passing a law is far easier than implementing it. Using DFAs for payment will involve onboarding foreign clients to Russian DFA platforms, which may not appeal to import and export counterparties.
Meanwhile, Russia is currently Chair of the BRICS trade group. By the end of this year it plans to produce a report on alternative payment options. This includes a BRICS Bridge platform, which will likely link central bank digital currency initiatives.
