Russia Passes Bill on Cross-Border Settlements via Cryptocurrency, a New Approach for China-Russia Trade?
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Russia Passes Bill on Cross-Border Settlements via Cryptocurrency, a New Approach for China-Russia Trade?
Bear makes a desperate move, starts afresh?
Navigating Web3 tides with focused insightsAuthor: Lawyer Liu Honglin, Shanghai Manqin Law Firm
Russia: Enough is enough — No more tolerance needed
According to RIA Novosti, on July 30, 2024, the Russian State Duma officially passed two landmark bills: one legalizing cryptocurrency mining and another enabling cross-border payments using digital currencies. The core of the cross-border settlement bill allows, starting September 1, 2024, the use of digital currencies for international settlements and exchange trading under an Experimental Legal Regime (EPR). Additionally, regulations outlining procedures and conditions for cryptocurrency mining will take effect in November, marking its formal legalization. These moves carry significant weight within the current global financial landscape—especially for Russia, which faces mounting economic sanctions from Western nations.
In recent years, stringent Western sanctions have severely hindered Russia’s ability to conduct cross-border transactions through traditional financial systems.
U.S. sanctions against Russia trace back to 2014, when Washington and the EU first imposed economic penalties following the Crimea incident. Initial measures focused on asset freezes and travel bans targeting senior Russian officials. However, as Russia's actions in the Ukraine conflict escalated, sanctions expanded into critical sectors such as energy, finance, and defense—restricting Russian companies and banks from accessing international capital markets. This marked the first large-scale financial blockade against Russia, with Western powers attempting to undermine its economic foundation by cutting off access to global financial networks.
In 2017, the U.S. enacted the Countering America’s Adversaries Through Sanctions Act (CAATSA), intensifying pressure on Russia with harsher restrictions on major banks, energy firms, and military-linked enterprises.
Following the outbreak of the Russia-Ukraine war in 2022, the U.S. and its allies significantly escalated sanctions. A pivotal moment was the exclusion of key Russian banks from the SWIFT international payment system. As the backbone of global cross-border transactions, being cut off from SWIFT meant Russian banks could no longer process international payments through this network, dealing a severe blow to Russia’s foreign trade. This move effectively severed much of Russia’s connection to the global financial system—not only limiting its ability to transfer funds internationally but also destabilizing its economy. Data from the Central Bank of Russia shows that delayed payments have become a primary challenge, directly contributing to an 8% decline in imports during Q2 2024. Cross-border payments for businesses have grown increasingly difficult across a wide range of goods—from raw materials to high-tech equipment—disrupting supply chains and sharply increasing operational costs.
Against this backdrop, Russia’s push toward digital currency-based cross-border settlements represents a strategic attempt to bypass Western sanctions and reclaim economic autonomy in international markets—an important step in financial innovation and resistance to external pressure. Elvira Nabiullina, Governor of the Central Bank of Russia, expressed optimism about the initiative. She revealed that Russia expects to conduct its first trial of cryptocurrency-based cross-border payments by the end of 2024 to overcome current financial challenges. “Today, the State Duma is reviewing a law allowing crypto settlements under an experimental regime,” she said. “We are already discussing trial terms with ministries, agencies, and enterprises, and expect the first such payments this year.” She added that regulators would maintain “flexibility,” reflecting Russia’s cautious yet pragmatic approach to implementing this policy.
International Reactions and Implications
As the saying goes, “A fast train relies on its leading locomotive.” Russia’s legislative move has sparked widespread attention and discussion globally—particularly among countries long subjected to U.S. and Western sanctions.
Digital currencies are emerging as vital tools in global political maneuvering and national financial security. Russia’s decision offers other sanctioned nations a new perspective: the potential to circumvent traditional financial sanctions via digital currencies. If widely adopted, this model could erode the effectiveness of Western sanctions. From this vantage point, virtual currencies are no longer merely instruments of financial innovation—they are evolving into new battlegrounds in geopolitical power struggles. Governments now recognize that controlling and leveraging digital currencies can help break through economic blockades and gain greater autonomy within the global financial order. Especially in a dollar-dominated system, digital currencies offer an alternative path to bypass conventional financial constraints, enhancing a country’s negotiating leverage in international affairs. For example, Iran began exploring the use of cryptocurrencies for international trade as early as 2022 to evade U.S. sanctions. The Iranian government has even publicly announced plans to develop its own central bank digital currency (CBDC) and actively seeks cooperation with other sanctioned states to build a financial network independent of Western control. Seeing the potential of digital currencies to resist external pressures, many emerging market economies are accelerating their own research and development. Latin American nations like Brazil and Argentina have launched national digital currency projects aimed at reducing reliance on the U.S. dollar. Russia’s new legislation may encourage these countries to further explore the application of digital currencies in international trade, potentially driving broader global innovation in the sector.
Conversely, Western nations have responded with clear concern and vigilance. In early 2024, the U.S. Treasury issued a statement warning other countries and businesses against attempting to evade sanctions via digital currencies, emphasizing continued crackdowns on any such efforts. To enforce compliance, the U.S. has tightened oversight of cryptocurrency exchanges, mandating stricter scrutiny of transactions originating from sanctioned jurisdictions. A high-profile case involves Binance, the world’s largest crypto exchange. In 2023, the U.S. Department of Justice launched an investigation into Binance, accusing it of failing to adequately prevent users from sanctioned countries from conducting transactions on its platform. The probe found that some users employed virtual private networks (VPNs) to mask their locations and continue engaging in prohibited activities. Under mounting regulatory pressure, Binance announced it would strengthen user identity verification, particularly for clients from high-risk and sanctioned regions. The Binance case highlights the complex role crypto platforms play within the global sanction regime and underscores how Western powers are deploying strict legal and regulatory tools to prevent digital currencies from becoming loopholes for sanction evasion.
Additionally, international institutions such as the International Monetary Fund (IMF) have voiced concerns. In its 2024 Global Financial Stability Report, the IMF noted that the rapid adoption of digital currencies—especially among sanctioned nations—could lead to fragmentation of the global financial system, particularly in areas like cross-border payments and anti-money laundering (AML), thereby increasing systemic risks. It warned that Western sanctions might accelerate a bipolar global financial structure: one anchored in the traditional, dollar-led system, and another based on emerging digital currency networks. The IMF called for international cooperation to establish a unified regulatory framework for digital currencies, aiming to prevent illicit uses while preserving financial stability.
Implications and Reflections for China
Russia’s bold experiments in cross-border payments and cryptocurrency mining may offer valuable insights for China’s future strategies.
First, relying on others is less reliable than self-reliance. Trade ties between China and Russia are growing ever closer. According to data compiled by Bloomberg, China accounted for approximately 28% of Russia’s total trade volume last year, up from 19% in 2021. In contrast, the EU’s share dropped from 36% to 17% over the same period. However, this trend now faces fresh challenges due to intensified U.S. sanctions on Russia.
For instance, in May, the renminbi (RMB) made up 53.6% of trading volume on Russian exchanges. But after mid-June sanctions forced the suspension of U.S. dollar and euro trading, the RMB’s share surged to 99.6%, becoming nearly the sole settlement currency in Russia’s foreign exchange market. This shift illustrates how China and Russia are deepening bilateral trade cooperation to reduce dependence on the dollar and euro amid international sanctions.
The internationalization of the RMB is not a new topic. The Chinese government has long sought to promote the RMB as a currency for international settlement, reserves, and investments—to enhance China’s influence in the global economy and reduce vulnerability to dollar dominance. Digital RMB, as a central bank-issued digital currency, plays a crucial role in this process. Beyond improving domestic payment efficiency, its cross-border functionality enables wider adoption of RMB settlements along the Belt and Road Initiative and among trading partners, advancing RMB internationalization.
Compared to mainland China’s digital RMB, Hong Kong Special Administrative Region’s newly launched Hong Kong Dollar Coin (HKDG)—a stablecoin—has a more international orientation. Its main goal is to integrate the Hong Kong dollar into the global digital asset ecosystem, attract international capital, provide flexible payment options for cross-border trade, and reinforce Hong Kong’s status as a global financial hub. In contrast, the digital RMB primarily focuses on transforming the domestic market and upgrading payment infrastructure, with strategic value lying in enhancing financial efficiency, promoting inclusive finance, and strengthening oversight of domestic financial activities.
The relationship among HKDG, digital RMB, and RMB internationalization can be seen as complementary across different levels. While HKDG and digital RMB serve distinct roles in international and domestic markets respectively, both contribute to advancing RMB globalization. HKDG strengthens Hong Kong’s position in global finance through deeper integration with international capital markets, indirectly supporting RMB internationalization. Meanwhile, digital RMB leverages technological innovation and policy support to gradually expand usage in international trade, offering direct backing for the RMB’s global outreach.
This synergy not only enhances China’s financial competitiveness but also advances the global acceptance and influence of the RMB through multi-layered, diversified innovations—benefiting both domestic economic development and global financial integration.
Second, can China copy Russia’s playbook? Notably, under the recently passed legislation, Russia permits the use of virtual currencies in cross-border trade while still banning their use as domestic payment methods. This dual-track approach allows Russia to harness the advantages of digital assets in evading sanctions without exposing its domestic financial system to instability. Could China adopt a similar strategy—using virtual currencies for cross-border settlements while maintaining tight domestic controls to safeguard financial security? This merits serious consideration.
By legalizing Bitcoin and other cryptocurrency mining operations, Russia has strengthened its capacity for self-sustained production and utilization of digital assets in circumventing U.S.-dominated cross-border payment systems. As the world’s most valuable and successful cryptocurrency, Bitcoin gives Russia a stable source of digital currency for international settlements when mined domestically. It also positions Russia within the global crypto market. Fueled by abundant energy resources and cold climates ideal for cooling mining hardware, Russia’s mining industry enjoys low operating costs and high efficiency. In 2023, Russia became the world’s second-largest crypto mining nation, accounting for 13% of global Bitcoin hash rate—second only to the United States. The Russian Ministry of Finance estimates that tax revenues from cryptocurrency trading and mining could reach 2.5 billion rubles (approximately $340 million) annually starting from 2023. This revenue stream provides a vital fiscal boost—especially under ongoing sanctions. For China, could there be room to consider permitting cryptocurrency mining in specific zones or under tightly regulated conditions, to bolster strategic reserves of mainstream digital assets and enhance competitiveness in the global financial arena?
Manqin Law Firm Summary
Russia’s passage of the cross-border settlement bill marks a milestone in the global evolution of digital currencies. It represents not only a financial innovation to counter international sanctions but also a far-reaching experiment with profound implications for the future of digital money. The role of virtual currencies in the global financial architecture is steadily rising, as countries race to research and deploy digital currency solutions—foreshadowing transformative shifts in cross-border payments and financial regulation.
For China, the key challenge lies in balancing digital currency applications between domestic and international markets: advancing RMB internationalization while ensuring national financial security. Through coordinated development of HKDG and digital RMB, China stands poised to gain a stronger foothold in the global digital currency race. At the same time, lessons from Russia’s flexible policies on crypto-based cross-border settlements and mining could inspire new pathways for the RMB’s “going global” strategy. Such efforts would not only strengthen China’s financial competitiveness but also contribute meaningfully to reshaping the future global economic order.
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