Politicians rarely think about the long-term implications of policy proposals and nowhere is this more evident than in the Russian Federation.
Vladimir Putin’s policies have turned the Russian economy into a shambles and the icing on this particular cake may well be his policies concerning virtual currencies, according to Russia's Ministry of Economic Development.
Putin recommended last March that “cash equivalents” be banned under Russian law. The Ministry of Finance (MinFin), Russia’s Central Bank and the Media Ministry began to implement the suggestions immediately by banning the “creation,” “distribution of software” and “deliberate dissemination” of “surrogate currencies.” They imposed fines of between 5,000 and 1 million rubles (US$125–US$25,035) on these activities when committed by lay persons, officials and businesses.
The Ministry of Economic Development took more time to actually study the potential effects of the proposal and released a statement warning that it would have an extremely negative effect on banks, retailers and telecom operators.
The problem with the law, according to the Ministry’s statement, is not that it bans Bitcoin. The problem is that it can be interpreted to include all ‘quasi-money’ or cash equivalents. This means that programs such as gift cards, certificates and reward points would also be effectively banned, and because these programs are designed to attract new customers and retain older customers the effects could be devastating.
The above industries are dead set against the new bill. Peter Darakhvelidze, WebMoney development director, said about the report:
"The proposed draft regulation act doesn’t solve any tasks assigned, but only serves to create legal barriers to the implementation of marketing programs of businesses and business development in general."
The news of Russia’s failing economy is really not news. CNBC’s Dina Gusovsky described a meeting with a Russian oligarch (who wanted to remain anonymous), at which he said:
"The economy is so unstable and will not survive at the current pace. And Russia does not make anything on its own.”
The country is also suffering from a bloated pension system, hyperinflation and a dependence on high oil prices, which in recent weeks have dropped significantly. But instead of opening up new avenues, the government seems determined to remain closed to the rest of the world.
But where does this leave Bitcoin with respect to the Russian system? According to Dr. Victor Dostov, a managing partner and one of the founders of the PayCash Group, a ban on virtual currencies is not the way for the government to solve its economic woes. In an interview with Cointelegraph in October Dostov said about the ban:
“We are concerned about the proposed legislation. I do not think that fines and a ban is a way to handle the risks that cryptocurrencies pose, just as any other technology. Probably, this approach of the government is based on the limited understanding of the prospects cryptocurrencies have in the long run. At this point I can only say that we have informed the Ministry of Finance about our concerns and the potential drawbacks associated with the prohibitive approach.”
But with sanctions coming from both the United States and the European Union, and the cold shoulder from foreign banks, Russia may have little choice but to explore other options. Putin is unlikely to back away from his adventurism in the Ukraine simply because of the region’s military and economic importance. This means that sanctions are likely to continue or even increase. The Russian people seem to love Bitcoin, however, as buying began to climb in May to record heights by November. The Putin government has some hard decisions to make, and one of them might include reopening the country to Bitcoin and other virtual currencies.
Did you enjoy this article? You may also be interested in reading these ones: