Putin’s mention of Russia’s energy reserves has led some to consider Moscow’s possible pivot to mining crypto as a source of revenue.
Jorge Pesok, the general counsel for US-based compliance software firm Tacen, told FX Empire:
It is certainly possible that mining could provide a source of taxable revenue for Russia – essentially limiting the anticipated effects of sanctions, but probably not to an extent that would offset the severe economic impacts the country is currently facing.
But with a dwindling customer base for its vast oil and gas reserves, could Russia use its energy resources by providing miners with more power to mine tokens, which could then be taxed?
Other states have already gone further. The Venezuelan military, for example, converted some military facilities in 2020 into crypto-mining data centers in an effort to bail out treasury coffers.
Crypto adoption campaigns have led the Venezuelan state, which has also been heavily sanctioned by Washington, would have amassing a vast reserve of BTC and Ethereum.
— CNW (@ConflictsW) November 20, 2020
Could the Kremlin follow Venezuela’s example?
Pesok was skeptical, saying he hadn’t “planned for the unlikely strategy” of using Russian energy reserves otherwise earmarked for export to mine tokens. He added:
I expect the country to seek revenue from taxation of crypto platforms such as exchanges, intermediaries and OTC desks, or other taxes on investments and income from the cryptography.
Flashpoint Intelligence’s Toth-Czifra agrees, explaining:
Even considering that the Russian government could legalize, tax and then increase this capacity, even with a tax rate close to 100%, even if the energy costs are ignored and even assuming that Russia is still able to import the equipment needed for mining in the future, the revenue from this would be a negligible fraction of what the Russian economy loses under the current sanctions regime.
A Russian move to tax crypto mining, he added “wouldn’t make any tangible difference at all.”
What about the digital yuan?
In great evils, great means. And while the digital ruble may only exist on the drawing board at this point, one notable CBDC is much closer to rollout: the digital yuan.
Beijing, which has blamed Western allies for the conflict, is in the final stages of its own pilot project. The integration of the Russians would allow both countries to abandon the USD in their cross-border trade.
Rajic, meanwhile, added: “One would have to ask whether importers would be willing to trade with Russia via a China digital reserve currency. And the idea is unlikely to be appealing to most businesses and financial organizations..”
Pesok agreed, noting that even “short-term workarounds, such as cryptocurrencies and digital payment solutions for small amounts of sanctions workaroundswere more appealing.
While Beijing might welcome the idea of putting its digital token to the test on the international stage, it might think twice about launching it in such a confrontational way. Already, the Asian Infrastructure Investment Bank, which is heavily backed by Beijing, has announced it will freeze Russian and Belarusian loans. The bank said it was acting in its “best interests”.
Toth-Czifra agreed that Beijing would likely forgo getting closer to Russia on the economic front for fear of a backlash, saying:
China has already signaled that it is wary of secondary sanctions. Chinese banks have already blocked the financing of Russian commodity sales. Chinese entities are unlikely to easily lend a hand to the Russian financial system, especially when the Chinese government’s official position is that Russia should resume negotiations with Ukraine.
How about a digital ruble?
Rajic felt that a CBDC, and “the centralized control it would bring” was “likely to be much more attractive to the Kremlin.” The Russian Central Bank is indeed working on a digital ruble, but that hasn’t even appeared in pilot form. Rajic said:
If the conflict were to end in a few weeks or months, I don’t think we would see a Russian CBDC accelerated to this point, but a few years later and it might be possible.
While a digital ruble is unlikely to deploy in time to save Russia from the full force of Western and allied sanctions, the long-term effects of these measures may well end up altering the economic landscape – beyond of any recognition.