Russia Considers Allowing Crypto Settlements on Two Islands

Russia is considering a significant move in its approach to cryptocurrency by allowing companies registered on two designated islands to conduct settlements using digital currencies. This proposal, put forth by Alexander Shenderyuk-Zhidkov, deputy chairman of the Committee on Budget and Financial Markets at the Federation Council, aims to leverage the special administrative regions (SARs) established on Russky Island in the Far-Eastern Primorsky Krai and Oktyabrsky Island in the Pregolya River in Russia’s European exclave of Kaliningrad.

These SARs are not considered residents of the Russian Federation in terms of currency regulations, which would enable them to carry out crypto transactions outside the space reserved for the Russian ruble, the only legal tender in the country. This move aligns with the Central Bank of Russia's stance that crypto payments must be kept outside the nation’s main jurisdiction, ensuring that digital transactions in these regions do not clash with the central bank’s policies.

While cryptocurrencies are recognized as property for various purposes in Russia, their use for payments within the Russian Federation is currently prohibited. The Central Bank of Russia has only agreed to permit their use in cross-border settlements for foreign trade under an “experimental legal regime” (ELR) with strict supervision. This mechanism has been used by Russian businesses to bypass financial restrictions imposed by Western sanctions, although the full terms and organizations involved have not been disclosed by the CBR.

Shenderyuk-Zhidkov expressed frustration with the slow implementation of the ELR, stating that he would not like to spend six years getting the law right. He believes that extending the ELR rules to the SARs on the two islands and giving some leeway in their interpretation could help attract foreign companies with Russian roots, potentially bringing some of the crypto assets with Russian origins back to the country as a measure countering capital flight.

As of the end of 2024, there were nearly 500 companies registered in Russia’s special administrative regions that offer flexible tax and currency regulations, including the Russian tech giant Yandex. Experts have weighed in on the proposal, with Mikhail Uspensky, a member of the expert council of the working group on legislative regulation of cryptocurrency circulation at the State Duma, describing it as fairly realistic. Uspensky predicts that this move would increase the number of players authorized to make crypto payments, positively impacting the development of the entire market in Russia. However, he expects the initiative to face a long series of approval procedures before getting the green light.

Maria Agranovskaya, Managing Partner of the Agranovskaya & Partners law firm, largely agreed with Uspensky, stating that while the idea is sound, it requires deep consideration to ensure it is implemented correctly without breaking the law. She emphasized the importance of the Bank of Russia’s opinion in this matter. This proposal is not the first of its kind; back in 2018, the Ministry of Finance suggested using the SARs to trade cryptocurrencies like Bitcoin, although the department seems to have since sided with the CBR’s position on crypto operations in the country.