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Russia to launch oil-backed cryptocurrency

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According to a report by a local news source, Russia plans on regulating cryptocurrency whilst also launching it’s own oil-backed digital currency.

The report appeared in Russian web portal Rambler last last week.  The lower house in the Russian parliamentary system – the State Duma – plans to review and adopt a law on cryptocurrency regulation next month.  Oleg Nikolaev, a member of the State Duma Committee on Economic Policy told Rambler that the legislation is at its final stage of development.

There has been much speculation in recent times as to what approach Russia will take towards cryptocurrency.  Many have been of the belief that there is every reason to expect Russia to take a progressive approach for a number of reasons.

A number of countries would like to be able to trade internationally without having to rely upon the U.S. dollar as a reserve currency and the currency of international trade settlement.  Both China and Russia are prominent amongst them.  Secondly, Russia is currently subject to trade sanctions as imposed by the United States, with cryptocurrency seen as a potential workaround.

In October, Russian President Vladimir Putin said that the United States is undermining confidence in the dollar as a reserve currency as a direct consequence of its pursuit of economic sanctions.  Putin didn’t confirm that Russia was following a strategy of de-dolarization, rather that the Russian Federation is being forced not to use the dollar.

This has also led to speculation by Russian economist Vladislav Ginko that Russia could move shortly to invest some of its $470 billion in cash reserves in cryptocurrency.  However, this progressive approach to cryptocurrency differs from that of the Russian Central Bank.  In 2017, the Central Bank stated that it was not convinced that cryptocurrencies were a good idea.

It is hoped that regulation will be progressive, encouraging the development of cryptocurrency and blockchain technologies, leading to innovation within the emerging digital economy.  As part of this move towards regulation, it has emerged that the Russian Federation will also launch an oil-backed cryptocurrency.

In conversation with Russian Energy Minister, Igor Yusufov, Rambler confirmed that the development of a road map which schedules the process for the introduction of such a cryptocurrency is in its final stages.

Yusufov confirmed that settlement via cryptocurrency in the energy market would allow Russia “to avoid the costs associated with the use of currencies that are not backed up”.  In this context, he referred to the unpredictability of exchange rate fluctuations, the commission for currency exchange and the effect of trade restrictions.

The energy minister said that there is an instability surrounding payments in dollars right now and that this provides the rationale for pursuing a cryptocurrency focused on the energy sector.

He stated:

“After the launch of the cryptocurrency platform, oil-producing countries will be able to maneuver with respect to financial and trade restrictions, which have become too many in recent years.  Based on this, the project will bring the greatest benefit to OPEC + countries, including Russia, which will be able to increase oil and gas exports.”

Sanction-hit nations gravitating towards crypto

OPEC member countries control the vast majority of the world’s oil reserves.  Whilst Russia is not an OPEC member, it is a significant oil producer.  A platform based on cryptocurrency would be of benefit to both Russia and OPEC countries.

Venezuela and Iran are OPEC members who currently face major difficulties in terms of oil exports due to economic sanctions imposed by the U.S.  Venezuela has already taken the approach of introducing a state cryptocurrency (backed by its oil and mineral reserves), largely as a mechanism to overcome sanctions.  It has proposed its cryptocurrency – the Petro – as a unit of account to OPEC, to market crude oil.

Another OPEC member – Iran – faces similar issues in terms of economic sanctions imposed by the United States.  It too is in the process of launching its own state cryptocurrency.

Gabor Gurbacs, Director of Digital Asset Strategies with VanEck confirmed recently that the International Monetary Fund (IMF) had approved plans by eight nations – including Russia, Canada and Venezuela to launch national cryptocurrencies.

In order to minimize potential U.S. interference in its cryptocurrency plans, Russia plans on starting to use its cryptocurrency initially for oil related trading projects within Commonwealth of Independent States (CIS) countries.

In this respect, Yusufov pointed to a current intergovernmental agreement between Russia and Turkmenistan related to cooperation in the gas sector.  Russian energy giant, Gazprom has a contract in place to purchase Turkmen gas until 2028.  “In the case of [this] project, such a center can become the first global center of cryptocurrency with real security”, said Yusufov.

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Pat Rabbitte
Pat is a writer from the West of Ireland - currently living and working in Medellín, Colombia. He has always had an inquiring mind when it comes to new technology. His discovery of Bitcoin back in 2013 slowly led to a realisation of the implications of the underlying tech. As a consequence, Pat’s passion for blockchain technology has led him to focus his writing on the subject.