Russia moves to cryptocurrency regulation by with draft law to control production and creation of digital money

PUBLISHED : Friday, 26 January, 2018, 2:22am
UPDATED : Tuesday, 06 February, 2018, 10:59pm

Russia moved towards regulating cryptocurrencies on Thursday by presenting a draft law aimed at controlling the production and creation of virtual money – something that has drawn both interest and suspicion from authorities.

The law, which still needs to be validated by the government and sent to parliament, aims at “providing a definition of digital technologies used in the financial sphere,” the Russian finance ministry said in a statement published on Thursday.

Russia, like other countries, has been swept up in the growing craze for bitcoin and other virtual currencies not backed by governments or central banks that are increasingly used for purchasing goods and services on the internet.

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Long suspicious of virtual money, Russian authorities now recognise it as a force and have started giving a legal basis to virtual currencies like bitcoin.

The ministry said the law will “allow to considerably reduce the risk of fraud” and “help create a transparent tax regime for operations with cryptocurrencies, which will lead to an increase in tax revenues.”

In a sign of how difficult it is to develop such a framework, the finance ministry reported a disagreement with Russia’s central bank whose position on virtual currency is more restrictive.

The finance ministry insists that, given the popularity of cryptocurrencies, an approach that is too strict would encourage their use on the black market and in the financing of terrorism.

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The proposed bill also outlines regulations on companies raising funds with cryptocurrencies, including so-called Initial Coin Offerings (ICO), which have lately come into the cross hairs of regulators.

In these transactions, a group creates its own virtual currency and raises funds by selling it to investors who pay with other virtual currencies, or since more recently, with traditional currencies.

The Russian draft law is the latest in a number of initiatives to regulate the global phenomenon.

Last week, France and Germany announced they intend to make a joint proposal on regulating bitcoin at a meeting of finance ministers from the G20 countries in March.

Their promise to develop regulations came as the value of bitcoin has gyrated sharply, soaring from US$10,000 to nearly US$20,000 and then back down to US$10,000 over a two-month period as speculators piled in and then authorities in China and South Korea cracked down on cryptocurrencies.