Russia considers allowing cryptocurrency payments on two islands

Russia should allow companies registered on two islands at both ends of the vast country to conduct settlements in cryptocurrencies, a Russian senator has suggested.

The destinations are designated as special administrative regions, and the digital transactions there won’t clash with the central bank’s stance that crypto payments must be kept outside the nation’s main jurisdiction.

Russia to trial crypto payments in the heart of Europe and the Far East

Russian firms based in 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, may start testing cryptocurrency settlements.

The idea was pitched by Alexander Shenderyuk-Zhidkov, deputy chairman of the Committee on Budget and Financial Markets at the Federation Council, the upper house of parliament, informally called the Senate.

Quoted by the business daily Vedomosti, the lawmaker explained that such entities are not considered residents of the Russian Federation as far as currency regulations are concerned.

This would allow them to carry out crypto transactions outside the space reserved for the Russian ruble, the only legal tender in the country, as required by the Central Bank of Russia (CBR).

While cryptocurrencies are yet to be comprehensively regulated, they have been recognized as property for various purposes, but using them for payments in the Russian Federation is prohibited.

So far, Russia’s monetary authority has only agreed to permit their use in cross-border settlements for foreign trade, exclusively within an “experimental legal regime” (ELR) under its strict supervision.

The mechanism is allegedly used by Russian businesses to bypass financial restrictions imposed by Western sanctions, but the CBR has not disclosed either the full terms or the organizations involved.

According to Zhidkov, the implementation of the ELR is “too slow.” He was quoted as stating:

“I would not like it if we spent six years getting the law right … After all, the ELR is experimental, so that we can experiment, and then accept this and spread it.”

The senator is convinced it’s possible to extend the ELR rules to the SARs on the two islands and give some leeway in their interpretation.

Shenderyuk-Zhidkov believes this can also help attract what he called “foreign companies with Russian roots,” thus 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, among which the Russian tech giant Yandex, for example.

Experts say it’s a sound idea that still needs Bank of Russia’s nod

Allowing companies registered on the two islands to use cryptocurrencies for settlements is fairly realistic, according to Mikhail Uspensky, member of the expert council of the working group on legislative regulation of cryptocurrency circulation at the State Duma, the lower house of parliament.

This would increase the number of players authorized to make crypto payments, which will have a positive effect on the development of the whole market in Russia, predicted Uspensky. 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 in her comments:

“The idea itself is sound, but we need to think deeply about how to do it correctly without breaking the law … The opinion of the Bank of Russia is important.”

Zhidkov’s proposal is not the first of its kind. Back in 2018, the Ministry of Finance suggested using the SARs to trade cryptocurrencies like Bitcoin.

“We are considering organized trading on Russky Island and Oktyabrsky Island, but we believe this should be allowed in [the rest of] Russia,” its deputy head, Alexey Moiseev, said at the time. Since then, the department seems to have rather sided with the CBR’s position on crypto operations in the country.

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