Best Bitcoin Exchange for Russia
The Russian Ministry of Finance published a bill on Thursday regulating crypto currencies. According to the bill, trading in digital currencies will in future only be permitted via officially licensed trading platforms. Crypto-Minung is classified in the draft as a taxable business activity.
For a long time, the Ministry of Finance was hostile to crypto currencies. But at the latest after President Putin discussed the technology with Ethereum founder Vitalik Buterin at the International Economic Forum in St. Petersburg in 2017, a trend reversal also emerged in Russian politics. In a recent press release, the ministry refers to the popularity of digital currencies and warns that a ban could lead to the growth of the shadow economy.
Instead of imposing a ban with draconian penalties, the Ministry of Finance is planning strict regulation of the market. Many experts support the desire to reduce the risks of digital transactions. But there is also criticism of the bill.
These are the most important points in the bill:
- The handling of digital transactions, mining, smart contracts, crypto currencies and e-wallets is to be regulated by law.
- Digital assets are regarded as property.
- The purchase and sale of crypto currencies may only be carried out via trading platforms and Forex brokers with an official licence.
- In Russia, crypto currencies will not be used to pay for goods or services in the near future.
- Mining is considered an entrepreneurial activity and is taxed accordingly.
- Investments via Initial Coin Offerings (ICO) are only permitted under certain conditions. Among other things, there is an
- investment limit of 50,000 rubles (719 euros).
Trading in digital currencies
The bill of the Russian Ministry of Finance allows the exchange of crypto currencies for other digital currencies. The sale and purchase of crypto currencies against the Russian ruble is also to be approved via official trading platforms. The Central Bank of the Russian Federation will be responsible for issuing licenses to the relevant brokers, who must meet a number of conditions. Organizations that are allowed to trade on the traditional stock exchange could also obtain permission for crypto trading, explained Deputy Finance Minister Alexei Moiseyev at the end of December 2017.
According to the economic portal RBC, the Central Bank supports the bill – with one exception. The exchange of digital currencies for rubles could promote money laundering and “dubious transactions”, warns the monetary guardian. This opens up opportunities for “unscrupulous” market participants and poses a “significant risk” to the stability of the financial system, RBC quotes the press office.
Anatoly Aksakov, Chairman of the Financial Markets Committee of the Duma, supports the Ministry of Finance’s bill. Although investments in crypto currencies are risky, regulation could reduce the risk of fraud, the expert explained. But a signature by Vladimir Putin is not realistic until July 2018. Before that, the State Duma would have to hold a comprehensive debate before the bill could be submitted.
The overall economic development of Russia after the dissolution of the Soviet Union was initially marked by a drastic slump in production. The loss of well-established trade relations within the Soviet Union contributed to this. The transition from a planned economy to a market economy was difficult and only partially successful.
Since the end of the financial crisis in 1998, the Russian economy grew again at rates between 4.7 and 10 % up to and including 2008.
However, it remained highly dependent on the development of energy and commodity prices on the world markets. In particular, energy and commodity prices determine the development of export revenues and government revenues. The diversification of production that we are striving for has not made much progress to date. The Russian economy produces finished products that are competitive on international markets in only a few areas, such as the arms industry.
The Russian economy has also become increasingly dependent on international developments in the area of international capital movements. This was demonstrated in 2008 by the effects of the global financial crisis on Russia, which started in the USA. Financial assets were withdrawn from Russia. Within six months, share prices in Russia collapsed by almost 80 %. The cost of borrowing abroad became drastically higher for Russian companies, if at all possible.
According to the OECD, growth slowed to 5.6% in 2008 as a result of the global economic downturn caused by the international financial crisis and fell temporarily in 2009 following the collapse in oil prices.
In the Global Competitiveness Index, which measures a country’s competitiveness, Russia ranks 38th out of 137 countries (as of 2017/18). In the Index of Economic Freedom, Russia ranks 114 out of 180 countries in 2017.
Germany’s largest trading partner
The most important trading partner for Russia is Germany – both as a customer and as a supplier. Russia supplies Germany almost exclusively with energy and other raw materials (metals, chemical raw materials). By contrast, German exports to Russia are predominantly finished goods (shares in 2007: machinery 24%, motor vehicles 17%, electrical engineering products and electronics 16%).
- In 2008, German imports from Russia increased by around 25 % to 35.9 billion euros. The annual average oil price increase of around one third contributed to this.
- At the same time, German exports to Russia rose by only around 5% and reached 32.3 billion euros. German companies are particularly successful on the Russian market in the important sectors of motor vehicles, machinery and equipment, building materials, furniture and agricultural products.
- The German deficit in the bilateral trade balance rose to 3.6 billion euros in 2008.
Inflation and recession
In 2007, inflation, which was still very high by international standards, could not be kept down any further, but was almost 3 percentage points higher than in 2006 at just under 12 %. According to the OECD, both financial policy and monetary and exchange rate policy contributed to this. On the one hand, government spending rose sharply before the Duma and presidential elections. In addition, the money supply grew very strongly due to the central bank’s purchases of foreign currency to stabilize the rouble exchange rate. In addition, food prices rose worldwide.
In 2008, inflation accelerated to 13.3 %, although economic growth already slowed significantly in the second half of the year. The global rise in energy and raw material prices contributed to the higher price increase.
The objectives pursued by the Russian government with its monetary and exchange rate policy, on the one hand to depress inflation, which is very high by international standards, and at the same time to keep the nominal exchange rate of the ruble constant against a basket of US dollars and euros and thus slow the real appreciation of the ruble, were difficult to reconcile in recent years. If it tried to dampen the appreciation of the ruble by buying foreign currencies in order to avoid a too rapid deterioration of the price competitiveness of Russian companies on the world market, the money supply and thus the inflation potential increased.
The International Monetary Fund (IMF) repeatedly called on the Russian central bank to make more determined efforts to reduce inflation. In the interests of stability, Russia should refrain from purchasing foreign currencies to limit the appreciation of the rouble if necessary.
From December 2007 to December 2008, the real appreciation against the currency basket weakened to 4.3 % (previous year: + 5.1 %). The real appreciation that began in 1999 has meanwhile resulted in the real ruble exchange rate being somewhat higher again than before the financial crisis in summer 1998. Russian exports can no longer benefit from devaluation advantages.
In the course of the international financial crisis, however, the framework conditions for Russia’s exchange rate policy changed significantly in 2008. The ruble also came under devaluation pressure against the US dollar. Since autumn 2008, the central bank has had the rouble devalued in small steps against the basket of US dollars and euros.
In addition, the strong dependence of exchange rate development on the price of oil was again evident in 2009. With oil prices rising, the ruble appreciated significantly again from February to mid-June 2009. With the temporary renewed drop in oil prices below $60/barrel, the ruble also came under devaluation pressure again.
Surpluses in the national budget dwindle
In 2006, high oil prices combined with a moderate expenditure policy resulted in a record surplus of 8.4 % of gross domestic product in the national budget. In the 2007 election year, government spending was increased by almost a quarter. The surplus fell to 6.0 % of GDP. In 2008 it was not able to maintain this level. Government revenues rose much more slowly than gross domestic product, and the surplus fell to 4.8 % of GDP. In 2009, the OECD expected a deficit of around 6 percent of GDP due to the sharp drop in oil prices since July 2008 and the slump in growth in the Russian economy. It demanded that expenditure increases planned by the Russian government be implemented quickly, in particular measures for social security against the crisis and an active labour market policy.
In contrast, the IMF has repeatedly criticized Russia’s budget policy in recent years, among other things because social benefits were significantly increased in 2006 after the cancellation of social policy benefits in kind at the beginning of 2005 led to considerable protests by the population. At the beginning of October 2008, the IMF demanded that fiscal policy should avoid any additional demand stimulus.
The basic idea behind the stabilisation fund set up in 2004 was that government spending should correspond to a certain oil price. Revenues that flow to the state when this “threshold price” is exceeded are to be saved in the stabilisation fund. If the oil price falls below the “threshold price”, government spending is to be stabilised by withdrawing funds from the fund. At the beginning of 2006, the “threshold price” was raised from $20 to $27 per barrel of oil.
In August 2006, around 23.5 billion US dollars were withdrawn from the fund in order to repay public foreign debt ahead of schedule. In 2005, all debts to the IMF had already been redeemed ahead of schedule. In addition, by the end of August 2005 some $15 billion in debt to the Paris Club of Public Creditors had been prematurely repaid. The IMF, the World Bank and the OECD have approved the use of the fund to repay government debt.
However, the OECD opposes demands to spend parts of the stabilisation fund on social benefits. Such demands were made, among others, by members of the Russian parliament. The Russian government decided to split the stabilisation fund.
At the end of January 2008, the fund’s holdings reached around 3,852 billion rubles (around 157 billion dollars) or around 9 % of gross domestic product. At the beginning of February 2008, the fund, which is now also fed by tax and customs revenues from the gas sector, was renamed the “Oil and Gas Fund”. It consists of two funds:
- The “reserve fund” is to comprise investments worth up to ten percent of Russia’s gross domestic product. At the beginning of July 2009 it comprised 2958 billion rubles (95 billion dollars).
- All revenues in excess of this are to flow into a new “fund for national prosperity”. At the beginning of July 2009 its stock had reached 2814 billion rubles (about 90 billion dollars).
As before, the reserve fund is to be invested in the stabilisation fund with the aim of maximising security. In the event of a sharp drop in oil prices, however, government spending can be financed by the reserve fund. This option will be used in 2009. From the beginning of the year until the beginning of July, the fund’s rouble holdings have fallen by a good quarter.
The funds on the other hand, are to be invested more riskier in order to achieve higher returns.
Government external debt
The Russian state has fully met its international debt obligations in recent years and has significantly reduced its external debt stock. The federal government’s external debt fell further to $26 billion (around 2% of GDP) by the end of June 2009. In view of the still abundant currency reserves, the financing of the debt service does not pose any difficulties.
On the other hand, Russian companies have increasingly taken out loans on the international capital markets. This was partly due to the relatively high financing costs at Russian banks, while lending rates abroad were lower. Russia’s total external debt, including the debt of private sectors abroad, rose to 541 billion US dollars by the end of September 2008 (almost one third of Russia’s gross domestic product). At the end of June 2009, they still amounted to around 475 billion US dollars. Refinancing these foreign loans has become increasingly difficult for Russian companies in the wake of the international financial crisis. They are also suffering from the “credit crunch”.
Third highest currency reserves in an international comparison
In 2007, currency reserves rose by around 57% to around 476 billion US dollars. At the beginning of August 2008, shortly before the war with Georgia, they peaked at almost 600 billion US dollars. As a result of the outflow of capital in the wake of the international financial crisis, however, by 20 March 2009 they had fallen by a good third to around USD 385 billion. In mid-July they stood at around 400 billion US dollars. This means that Russia still has the third-highest currency reserves in international comparison. Only China and Japan have higher currency reserves. Since the Russian currency reserves are now higher than the state’s foreign debt, Russia is now a net creditor to foreign countries.
Russia’s rating as a borrower
Due to their investment guidelines, many institutional investors are only allowed to buy bonds with an “investment grade”.
Of the three leading rating agencies, Moody’s, Fitch Ratings and Standard & Poor’s, at the beginning of April 2009 only Moody’s awarded the Russian state the third-lowest investment grade for its long-term borrowing in foreign currency. In February 2009, Fitch Ratings lowered its rating to the second-lowest investment grade in view of the deterioration in the economic situation. Standard & Poor’s had already done so in December 2008. Fitch Ratings and Standard & Poor’s also announced that they consider a downgrade of Russia to be more likely than an upgrade in the future by reducing their so-called “outlook” to “negative”. The factors cited as burdensome included the high costs of stabilising the Russian financial system, rising capital outflows and the threat of a budget deficit in 2009.
Foreign trade and current account balance
- In 2008, foreign trade was dominated by the sharp rise in oil prices until July. The Ural oil price averaged $93.9 per barrel for the year, some 35% higher than in the previous year. In terms of value, exports grew more strongly (+ 33 %) than imports (+ 31 %). The trade surplus ($180 billion) was 37.3% higher than in 2007.
- Energy export revenues rose at an above-average rate of 42 % in 2008 (oil: + 32 %, products: + 53 %, natural gas: + 54 %). The share of exports of crude oil, petroleum products and natural gas in goods exports rose to around 66 %. It was significantly higher than in 2007 (62%).
- The surplus in the Russian current account, which in addition to trade in goods also includes trade in services and the exchange of gratuitous services, was around a third higher in 2008 than in the previous year at around $102 billion (around $77 billion). The rise in oil prices (+ 35 % on average in 2008) contributed to this.
- In the first half of 2009, the Ural oil price of $50.5 per barrel was around 52% below the level in the first half of 2008. Trade and current account surpluses fell significantly.
- At $43.2 billion, the trade surplus was around 57% lower than a year ago. Exports fell even faster (- 47 %) than imports (- 39 %).
According to estimates by the central bank, revenues from the export of crude oil, petroleum products and natural gas totaling around USD 77 billion were around 52 % lower than in the first half of 2008 (crude oil: – 53 %; petroleum products: – 51 %; natural gas: – 50 %). The share of energy in exports fell to 61 % (first half of 2008: 67 %). In 2009, the OECD expects the surplus to fall significantly to 3.3 % of GDP. Deutsche Bank/UFG even expects a deficit of around $45 billion (around 3 % of GDP) if oil prices remain low.
The Russian State Duma will shortly decide on the admission of digital securities
In the event of successful adoption, two such laws could be passed within the next two weeks. The second reading in Russia’s national parliament will therefore decide the immediate future of ICOs and other crypto financial products in the country. However, one thing is already certain: Facebook’s Libra currency will not be legalized.
In Russia something is finally happening with regard to regulation. Tass.ru, a Russian online news site, reports on 18 June 2019 that Parliament is about to decide on two laws. These are an ICO law and a law on digital securities. If parliamentarians adopt this after the second reading, the way is clear for digital securities on a crypto basis.
Russia’s Deputy Finance Minister optimistic
Meanwhile, Alexey Moiseev, Russia’s Deputy Finance Minister, sees good chances for a speedy decision by the State Duma. “We are currently reviewing the text of the law on digital financial assets and I hope we will adopt it within the next two weeks at the second reading,” the politician said. Furthermore, he confirms that the law also passes approximately in its current form the Parliament.
The ICO law has apparently already been accepted. According to Moiseev it is part of a regulation on crowdfunding.
The chairman of the parliamentary committee on financial markets, Anatoly Aksakov, commented in advance on the delays in the regulation of crypto currencies in Russia. According to the report, the FATF’s demand for regulation of Bitcoin & Co. has become part of the national regulatory process.
Criticism of Libra also in Russia
Despite an approaching legislative breakthrough, Russian authorities remain true to their skeptical line towards certain crypto products. For example, Russia does not intend to legalize the active circulation of digital currencies in the country. Although users can continue to purchase Bitcoin & Co. online, they want to prevent crypto exchanges from Russia.
Even the newly introduced “Facebook-Coin” Libra will probably have no future in Russia. In a radio interview, Aksakov spoke out against the legal adaptation of coins on Russian territory.
On the other hand, the chairman of the Russian central bank publicly plays with the idea of an in-house crypto currency. At a student conference Elvira Nabiullina discussed possible advantages of such a project in the future. It is true that the technology would have to mature further to be reliable. All in all, however, an electronic currency offers the population of Russia many opportunities.
Russia tests Bitcoin & Co. in four Regulatory Sandboxes
The Russian Ministry of Economic Development begins testing crypto currencies in four selected regions. The Regulatory Sandboxes, which include Moscow, are given permission to test products with blockchain, AI and robotic technology. Meanwhile, neighbouring Finland has also adopted initial regulatory measures for trade in crypto currencies.
As the Russian news site Izvestia reports, preparations are beginning in Russia for testing new technologies, including crypto currencies and blockchain. In so-called “Regulatory Sandboxes” in four regions of the country, experimental development of new technologies is taking place under special economic and legal conditions.
In the future, companies in Moscow, Perm Krai, Kaluga Oblast and Kaliningrad Oblast will be able to test the application of future technologies in the experimental special economic zones. In addition to crypto and blockchain, neuro- and quantum technologies, AI, robotics and VR are among the innovations to which the government is giving the green light on a trial basis.
As early as January 2019, the Ministry of Economic Development published a corresponding federal law. Last week, the Deputy Minister for Economic Development, Savva Shipov, gave details of the individual technologies in a press release.
Regulatory Sandboxes: Special economic zones with more legal freedoms
According to Shipov, the aim of the Regulatory Sandboxes is “to stimulate innovation by applying more flexible regulations compared to federal law”. For example, the entry process of new technologies into the market is shortened. In the exclave of Kaliningrad, those responsible expect the advantages of blockchain technology. The regional administration of Kaluga Oblast announced that projects to regulate Big Data are being planned. Perm Krai is primarily interested in low-risk adaptation of outdated structures to modern IT developments. The local administration did not provide any details on the industries in which the update will take place.
Russian economic experts welcome the step. They also warn, however, that a transition from local regulatory sandboxes to the national economic market could pose high bureaucratic challenges.
President Putin urges rapid regulation
In Russia, blockchain technology has so far been largely unregulated. The State Duma last postponed the vote on a draft crypto law at the end of March 2019. President Putin is increasingly impatient. He therefore set the government a deadline of 1 July 2019 to adopt regulatory measures.
Neighbour Finland takes on the crypto economy
However, neighbouring Finland is one step further. The northern European state of 5.5 million inhabitants now has a law that regulates trade in digital currencies. The Finnish Financial Supervisory Authority (Fin-FSA) announced on Friday 26 April that President Sauli Niinistö had signed the draft Act on Virtual Currency Providers. The measures to regulate crypto exchanges and fiduciary wallets will come into force on 1 May 2019.
The inhabitants of Russia live in eleven different time zones, as the country stretches from Eastern Europe to North Asia. The Pacific Ocean lies to the east, the Sea of Japan to the southeast. In the far east, only the Bering Strait – a strait in the northern Pacific – separates East Siberia from Alaska and the USA. To the west, Russia borders Finland, Norway, Estonia, Latvia and Belarus. The long southern border runs from Ukraine via Georgia, Azerbaijan, Kazakhstan, Mongolia and China to North Korea. Besides the Russians there are more than 100 different nationalities and peoples scattered all over the country. The Russian economy has developed strongly, with special strengths of the Russians being technologies for spaceships and modern materials, biotechnology and laser technology. The most important agricultural products are potatoes, cereals and cow’s milk. It is assumed that the country name derives from the word Rus. Rus was the name of various medieval empires.