Citing threat to financial stability, Russia proposes ban on use and mining of cryptocurrencies

Following crackdowns by governments in Asia to the United States, Russia on Thursday proposed a ban on mining and use of cryptocurrencies, citing threats to financial stability, Russians' well-being and its monetary policy sovereignty. This move from the country's central bank comes amidst growing concerns that privately operated and highly volatile digital currencies could compromise their control of monetary systems.

For years now, Russia has argued that cryptocurrencies could be used in money laundering or to finance terrorism. Although the country gave digital currencies legal status in 2020, it has banned their use as means of payment.

In a report published, Russia's central bank stated hypothetical demand predominantly determined the rapid growth of cryptocurrencies. The bank also warned of potential bubbles in the market that can prove to be a threat to citizens' financial stability.

The bank also proposed preventing its financial institutions from operating with cryptocurrencies, adding that methods should be developed to block transactions aimed at buying or selling cryptocurrencies for fiat currencies. 

The proposed ban by Russia's central bank also includes crypto exchanges. The bank, however, said it would work with regulators across countries where crypto exchanges are registered to attain information about Russian clients' operations.

The Bank of Russia also insisted that the crypto mining process guzzles electricity and is often powered by fossil fuels, thereby creating problems for energy consumption. In August 2021, Russia accounted for 11.2 per cent of the global hashrate - a jargon used to indicate the amount of computing power used by computers connected to the bitcoin network.

"The best solution is to introduce a ban on cryptocurrency mining in Russia," the bank added.

In September last year, China amplified its crackdown on cryptocurrencies by imposing a ban on all crypto mining and transactions. This blanket ban hit bitcoin and other major coins, adding pressure to crypto and blockchain-related stocks. It's worth noting that Russia is currently the world's third-largest player in bitcoin mining, behind the United States and Kazakhstan.

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