Bank of Russia Considers It Premature to Permit Digital Currencies, Warns of ICO Risks

The Bank of Russia has issued a statement warning about the risks of digital currencies including bitcoin as well as Initial Coin Offerings (ICOs). The central bank says it is premature to allow the circulation and use of cryptocurrencies within the financial infrastructure of Russia.

Also read: Google Says Russia’s Interest in Bitcoin up 220%, Mining 560%, Ethereum 760%

Bank of Russia’s Warning

The Central Bank of Russia issued an official statement on Monday regarding digital currencies. The bank’s press release states that:

Operations with cryptocurrencies carry high risks both during exchange operations, including due to sharp exchange rate fluctuations, and in the case of raising funds through the ICO (Initial Coin Offering – a form of attracting citizens’ investments in the form of issuing and selling new cryptocurrency to investors / tokens).

There are technological risks when issuing and handling cryptocurrencies as well as the risks of ownership, the bank continued. “This can lead to financial loss for citizens and to the inability to protect the rights of consumers of financial services in the event of their violation.”

Moreover, due to the anonymous nature of the issuance of cryptocurrency, the bank claims that citizens and legal entities may be involved in illegal activities, including money laundering and terrorist financing.

Premature to Admit Cryptocurrencies

The bank noted that the number of inquiries from financial market participants and the media regarding cryptocurrencies has sharply increased. Recently, reported on an analysis by Google which found that the number of Russian cryptocurrency-related search inquiries jumped significantly in the first half of 2017.

Given the high risks of circulation and use of cryptocurrency, the central bank states:

The Bank of Russia considers it premature to admit cryptocurrencies, as well as any financial instruments nominated or associated with cryptocurrencies, to be circulated and used in organized trades and in clearing and settlement infrastructure on the territory of the Russian Federation for servicing transactions with cryptocurrencies and derivative financial instruments on them.

The bank also reiterated on Monday that its position regarding digital currencies has not changed from 2014 when it released an official statement warning about them, particularly bitcoin. “According to Article 27 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia),” the issue of monetary surrogates on the territory of the Russian Federation is prohibited,” the bank described at the time.

In addition, the bank revealed that it is working with other interested federal bodies to monitor the cryptocurrency market as well as develop approaches to define and regulate them in the Russian Federation. “Most operations with cryptocurrencies are performed outside the legal regulation of both the Russian Federation and most other states,” the bank detailed, adding that “cryptocurrency is not guaranteed and is not provided by the Bank of Russia.”