News
Russian companies are turning to cryptocurrencies for commodity trading in China
(Bloomberg) — Russian commodities companies struggling to execute financial transactions with Chinese counterparts have begun leveraging a new method of settling deals: stablecoins.
Most read by Bloomberg
At least two major metals producers, both unsanctioned, have begun using Tether Holdings Ltd.’s stablecoin and some other cryptocurrencies to settle some of their cross-border transactions with mostly Chinese customers and suppliers, top company executives said , declining to be identified as the information is not public. In some cases, settlements pass through Hong Kong.
The fact that large Russian companies are now turning to blockchain, two years after the invasion of Ukraine began in February 2022, underlines the lasting effect that international restrictions in response to the war have had on the economy. Russian companies that deal in raw materials, from metals, such as nickel and steel, to timber, have faced difficulties receiving payments for their goods and purchasing equipment and raw materials since the start of the conflict. This is true even when they are not sanctioned, although some have been subject to multiple sanctions by the United States, the European Union and their allies.
Even in China, which has not joined international sanctions and has become the main export market for numerous Russian raw materials as well as a supplier of goods and equipment, financial transactions have become more difficult this year. This is largely because the US Treasury Department has threatened secondary sanctions on lenders facilitating sanctions evasion, which has led to a tightening of compliance measures.
“With stablecoins, the transfer can take as little as 5-15 seconds and cost a few cents, making such transactions quite efficient when the sender already has an asset base in stablecoins,” said Ivan Kozlov, digital currency expert and co-founder of Resolv Labs, which offers cryptocurrency-related products, but is not involved in commodity trading. Tether’s USDT stablecoin is pegged to the US dollar, making it even more convenient for exporters.
The alternative is often slower transactions or, worse, risking that a foreign bank account could be frozen, executives said. Some unauthorized companies opened dozens of accounts in different countries only to see them frozen one after another, one of the people said.
The story continues
“In countries facing dollar liquidity issues and capital controls, cross-border payments via cryptocurrencies and, in particular, dollar-pegged stablecoins, are a relatively common practice, and not just in the commodities sector,” he said. Kozlov stated.
Read more: US, UK probe $20 billion in cryptocurrency transfers to Russian exchange
The use of cryptocurrencies for payments is not uncommon for sanctioned countries. Transactions for goods from Venezuela, home to the world’s largest proven crude oil reserves, are increasingly being made using Tether. Many of the offers, which come at deep discounts, are brokered through intermediaries based in Dubai.
The growing role of cryptocurrencies in transactions also indicates a change in the Russian central bank’s approach to the sector. Previously, the Bank of Russia had considered a blanket ban on the use and creation of all cryptocurrencies, but Governor Elvira Nabiullina told parliament in November that she supported testing such payments in international transactions.
However, the regulator reminded lenders using the cryptocurrency that payments are only acceptable for cross-border transfers and that such arrangements should not be advertised, a person close to the central bank said.
Separately, lawmakers should consider legislation to create a legal framework for the use of stablecoins in international transactions.
The central bank also recently said it had observed a significant increase in cryptocurrency activity among Russians in recent quarters.
Read more: What are stablecoins and why is PayPal getting into the game?: QuickTake
Cryptocurrency banking services in Russia are also expanding. Rosbank, owned by billionaire Vladimir Potanin, who is also a shareholder in nickel mining company MMC Norilsk Nickel PJSC, became the first Russian lender to start cross-border cryptocurrency payments for businesses in June last year, according to Vedomosti. Other banks have since started such services.
Meanwhile, some commodities companies have taken a different route to settle transactions, also once considered exotic. Some steelmakers are using so-called barter deals, in which goods are exchanged for goods shipped to Russia, avoiding cross-border transfers entirely, the people said.
–With assistance from Ben Bartenstein.
(Updates with more context from the central bank in the 12th paragraph. An earlier version corrected a newspaper name in the 13th paragraph.)
Most read by Bloomberg Businessweek
©2024 Bloomberg LP