Russian Firms Turn to Crypto for China Commodities Trade

(Bloomberg) — Russian commodity firms struggling to conduct financial transactions with their Chinese counterparts have begun using stablecoins, a new method of closing deals.

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At least two major metals producers, neither approved, have begun using Tether Holdings Ltd.’s stablecoin and some other cryptocurrencies to process some of their cross-border transactions, mostly with Chinese customers and suppliers, the companies’ top executives said. , your identification has been declined because the information is not public. In some cases, settlements pass through Hong Kong.

The fact that major Russian firms are now turning to blockchain, two years after the start of the invasion of Ukraine in February 2022, underscores the lasting impact that international restrictions in response to the war have had on the economy. Russian companies dealing in goods ranging from metals such as nickel and steel to timber have faced difficulties receiving payment for their goods and purchasing equipment and raw materials since the beginning of the conflict. This is true even in the absence of sanctions, although some have been subject to numerous penalties from the United States, the European Union and their allies.

Even in China, which does not participate in international sanctions and has become the main export market for many Russian goods, as well as a supplier of goods and equipment, financial transactions have become more difficult this year. Much of this is due to the U.S. Treasury Department threatening to impose secondary sanctions on lenders that make it easier to evade sanctions, which in turn is tightening compliance measures.

“In stablecoins, the transfer can take only 5-15 seconds and cost a few cents, making such transactions quite efficient in cases where the sender already has an asset base in stablecoins,” said digital currencies expert and co-founder Ivan Kozlov. Resolv Labs, which offers crypto-related products but has no involvement in commodity trading. Tether’s USDT stablecoin is pegged to the US dollar, making it even more affordable for exporters.

The alternative is often to process transactions more slowly or, worse, risk having an overseas bank account frozen, executives said. One of the sources said that some unapproved companies opened dozens of accounts in different countries, but they were frozen one after another.

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“In countries facing dollar liquidity issues and capital controls, cross-border payments through cryptocurrencies and especially dollar-linked stablecoins are a relatively common practice and not just for commodities,” Kozlov said.

Read more: US, UK Investigating $20 Billion Crypto Transfer to Russian Stock Exchange

It is not uncommon for countries under sanctions to use cryptocurrencies for payments. Cargo transactions from Venezuela, home to the world’s largest proven crude oil reserves, are increasingly being carried out using Tether. Most of the deals at deep discounts are made through Dubai-based intermediaries.

The increasing role of cryptocurrency in settlements also marks a shift 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 in November Governor Elvira Nabiullina told parliament that she supported testing such payments in international transactions.

Still, a person close to the central bank said the regulator was reminding lenders using cryptocurrency that payments are only acceptable for cross-border transfers and that such deals should not be advertised.

Separately, lawmakers need to consider legislation to create a legal framework for the use of stablecoins in international transactions.

The central bank also said it has observed a significant increase in cryptocurrency activity among Russians in recent quarters.

Read more: What Are Stablecoins and Why Is PayPal Jumping on This Topic?: QuickTake

Crypto-related banking services in Russia are also expanding. Rosbank, owned by billionaire Vladimir Potanin, who is also a shareholder in nickel miner MMC Norilsk Nickel PJSC, became the first Russian lender to start cross-border payments in cryptocurrency for businesses in June last year, according to Vedomosti. Since then, other banks have also started such services.

Meanwhile, some commodity firms have taken a different route to executing transactions once considered exotic. Some steel producers avoid cross-border transfers altogether and use so-called barter agreements, in which goods are exchanged for goods destined for Russia, the sources said.

–With help from Ben Bartenstein.

(Updates with more context from the central bank in paragraph 12. The name of a newspaper was corrected in paragraph 13 in an earlier version.)

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