Last week Russian news outlet Kommersant reported on the planned creation of two cryptocurrency exchanges for foreign payments to circumvent sanctions, citing sources. The aim is to create stablecoins for the Chinese yuan and a BRICS currency basket. It’s expected that initially individuals won’t be able to take part, given the goal is to support importers and exporters.
Russia passed legislation in late July allowing cryptocurrency exchanges to operate as part of cryptocurrency experimental legal regime (ELR) under a program developed by the central bank.
The use of stablecoins rather than un-backed cryptocurrencies makes sense given the central bank’s role.
Update: shortly after publication, Bloomberg said that preliminary tests start this weekend, citing sources. These trials will use the National Payment Card System to swap rubles for any cryptocurrencies using an existing crypto exchange. Use of the card system gives the central bank oversight. The outcome of these preliminary tests will determine steps around the potential creation of crypto exchanges next year, as described below. Bloomberg’s sources reiterated the same two exchanges.
The Kommersant article was a little controversial. It stated that one of the cryptocurrency exchanges might involve the Moscow Exchange. The other exchange will use the St. Petersburg Currency Exchange (SPCE) database for foreign economic activity.
While the currency exchange disputed this point, it would make sense to use its database, given the currency exchange knows the details of the importers and exporters. Interfax, the state news agency, published a report in which the St. Petersburg Currency Exchange (SPCE) strongly denied involvement.
The Moscow Exchange runs the main currency exchange, but trading in dollars and euros came to an abrupt halt in June when OFAC placed it on the sanctions list. Hence, it also has data on who might qualify as a professional for FX trading in stablecoins.
There may be some confusion between two entities that we suspect are not related. The sanctions and sanction busting sometimes resemble Whac-A-Mole. Every time Europe or OFAC sanctions an entity or methodology, Russia tries something else.
Russia has iterated through foreign branches, digital financial assets involving tokenized commodities, CBDC, crypto and others. The foreign branches are gradually getting sanctioned, with warnings not to open new ones. And most of the digital financial asset (DFA) issuing platforms and known cryptocurrency exchanges have also been sanctioned. Sanctions announced this week cover commodities.
Sanctions and two similar sounding Russian entities
There are two Russian entities with similar names. There is the Saint Petersburg Currency Exchange known in English as SPCEX or SPVB and in Russia as JSC SPB, versus the Saint Petersburg Stock Exchange (PJSC SPB). OFAC sanctioned the stock exchange in November 2023. We don’t think the currency exchange has yet been sanctioned directly, but there’s a caveat.
It is believed that state owned bank Promsvyazbank controls the currency exchange. The bank was one of the first on the sanctions list, which includes subsidiaries and hence the currency exchange. However, as the ownership isn’t entirely clear, it’s conceivable the currency exchange may have been ignored so far. That may be why it doesn’t want to be associated with the crypto exchange.
Google translates the currency exchange acronym СПВБ as the Saint Petersburg Stock Exchange.
On the other hand, the sanctioned stock exchange is registered as a digital financial assets platform. In a May interview, its CEO said its involvement as a cryptocurrency exchange operator was under discussion. However, we believe it’s the currency exchange that has the useful data.
While the Russian end isn’t clear yet, nor is the other side. If Russia wants to use a Chinese currency stablecoin, what assets would form part of the reserves? Likely it will use the excess reserves Russia received for all payments.
Which cryptocurrency exchange will be used on the Chinese end? Will China allow some off-ramping from a stablecoin to the mainland? Or will it be via Hong Kong?
An even bigger question is this: in the absence of CBDC, could stablecoins form the interim foundation of the so-called BRICS Bridge for local currency payments?
