After the division of the union, Russia had lost its significance from political, financial and other scenarios in the world. With time it has gained its edge back, and now it is also heading towards new heights with the booming economy. In the world of virtual currency, Russia has liberated his norms which can have notable implications on cryptocurrencies as well as the financial market. As per the experts, Russia will lead the rally of the crypto boom and move ahead which will also lead other countries across Europe. This news has opened the gates for virtual currencies in Europe now.
There is some good news for cryptocurrency followers in Europe and other countries. Russia has now recognized the benefits of cryptocurrencies and taken its first step to codify digital assets. It has also understood the risks associated with such assets and defined them in proper legislation that is called On Digital Financial Assets.
It deals with how authorities should treat cryptocurrencies and how businesses and individuals can handle them in everyday transactions. However, payment companies and financial technology companies may still have to wait for some more time to enter Russia.
According to the new legislation bill on DFAs, digital assets are defined as digital rights and electronic data that comprises monetary claims. They are also considered as negotiable securities and obtain rights to participate in the equity of non-public companies with shares.
The bill also clarifies that the DFAs can be bought and sold or exchanged for other digital assets. The interesting thing is that they can also be inherited like other assets. However, the digital currency cannot be used as means of payment for goods or services. No company can advertise that it accepts digital currency payments. Such digital assets do not constitute any form of Russian or other foreign currency.
According to the new bill, the digital asset exchanges and issuers are termed as digital asset operators, and the traders and holders are considered investors. The good thing is that it legitimizes the trading and exchange of digital assets in Russia.
This is in tune with the stance taken by UK tax authorities who consider digital assets as property and taxable at the individual and commercial level.
The basic design of cryptocurrencies has some flaws that make it difficult to be adopted as a mainstream currency. The cryptocurrencies have fixed eventual total supply which cannot be used in a macroeconomic sense as it leads to deflation risks. The ability to manipulate monetary supply due to market demand makes it difficult to control the price volatility, and it can become a bigger problem than the regular currency.
We have all seen how the COVID 19 pandemic has made it difficult for the common public to survive jobless problems and other financial problems. In this situation, the central banks are able to adjust the monetary policy and bring in some liquidity into the market. The governments are able to offer stimulus packages, and this is bringing some relief to the common public. The US Federal Reserve and Bank of England have already rolled out such measures in the last few months, and this has kept the economy under control during the pandemic.
On the other hand, cryptocurrencies are more like barter systems, and it is often an agreement between the participants. The regulators have absolutely no control over such systems, and this cannot be easily adopted into the economy on a full scale. On the other hand, the traditional currencies have back up by the central banks and the common public trust them due to this factor.
The promoters of cryptocurrencies are criticizing the moves of central banks to print money whenever they are dealing with a financial crisis. Even though this can provide temporary relief to the economy by injecting liquidity, it can lead to hyperinflation in the long run. The money will get devalued in the future, and the long term implications of such problems will be very tough to handle for the governments. However, situations like COVID 19 have left the governments with no other option, and this had to be done to bring some relief to the economy.
Russia giving permission to cryptocurrency is a significant move for the crypto industry, and it has removed the central monetary authority to handle the cryptocurrencies. On the other hand, the distributed ledger of the system will be used for checks and balances.
However, the Russian bill has made it clear that people participating in such transactions will be closely monitored by the central bank of Russia, and they will also be controlled as per the provisions in the bill. The digital asset operators will have to register with the Bank of Russia, and all the DFA transactions will be carried within a framework that is approved by the Central Bank.
The Central Bank will also verify the digital asset operators and monitor the transactions in the long run. The operators and investors have to declare the possession and transfer of digital assets while doing transactions.
Many experts are of the opinion that this is a controlled atmosphere, and it offers little provision for the DeFi methods. However, considering the fact that the cryptocurrency market is still not mature, this is a decent provision as it provides legitimate status to such transactions in Russia.
Market experts are happy that at least some recognition with regards to the cryptocurrencies are now available in the country and further modifications to the bill will give them better freedom in the long run. This is a surprise move for many players who thought that the conservative economy of Russia would not allow such things to progress. However, the new bill has given a legitimate status to the cryptocurrency transactions, and this will also lead to the growth of the industry in the future. It is also good to see that the central banks are involved in monitoring the activities, and this will improve investor confidence in the future about using such cryptocurrencies.