We continue with our brief survey of crypto and digital currency initiatives from around the globe, all of which are officially sanctioned to enhance national competitive advantage (in the event crypto overtakes the US dollar as the global reserve currency).  It is the cumulative adoption rate of state-sanctioned crypto and digital currency legalization and regulation that will propel this innovative system for value exchange as a global currency standard. Today, we cover India, Argentina, and Russia.  In a previous post, we provided an analysis of crypto and digital currency initiatives in El Salvador, Panama, and Ukraine.

India

“…challenges like crypto cannot be tackled by nations in isolation…”

On February 1st, Indian Finance Minister Nirmala Sitharaman announced the following:

• A 30% tax on any income from the transfer of virtual digital asset.  In a 2022 budget speech, Sitharaman noted that “there has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from the transfer of any virtual digital asset shall be taxed at the rate of 30 percent.”
• A central bank digital currency (CBDC) will be issued in the 2022-2023 timeframe, the first time the launch has been given a timeline by the
  Indian government:  In the same speech, Sitharaman elaborated on this “Digital Rupee” initiative:  “Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.”

According to Coindesk:

Argentina

“…the cryptocurrency ecosystem is still operating under the radar of regulators, which bodes well for crypto’s ability to innovate…”

So far in our analysis, Argentina is by far the wild, wild south of crypto, complete with unregulated working conditions, cheap crypto mining infrastructure, and a population searching for decades for viable fiscal disintermediation safely away from disastrous national fiscal policies.

According to Forbes:

• Argentina’s economy is a prime breeding ground for the crypto world. Stuck in a decades-long economic downturn with its consistent gusts of stagflation, administrations of all colors have relied on price freezes and currency controls to try to put a lid on inflation. Yet, the destruction of purchasing power continues unabated, leading many to try and find their way into US dollars paying a massive premium for the so-called “dólar blue,” currently at 58 percent.
• Cryptocurrencies are already being used to convert pesos into dollars.  Argentinians are circumventing government restrictions through peer-to-peer transactions at more competitive exchange rates than the aforementioned blue-chip dollar, with said transactions rising from under US$200,000 in late 2019 to US$600,000 last year, according to data from ChainAnalysis.
• Argentine regulators have yet to regulate the space. That’s not expected to last, as the Central Bank has already begun investigations into nine fintech firms for allegedly allowing depositors to earn interest on their crypto holdings. The National Securities Commission had joined the Central Bank is warning investors to be prudent in their cryptocurrency investments, and the Argentinian Tax Agency, AFIP, has begun snooping around to see if it can take a cut too.(2)

Although the recent fiscal quarter saw improvement in the abysmal economic conditions in Argentina,  other analysts feel that radical policy change and a continuing partnership with the IMF are the only things that will fish Argentina out from a “century-long malaise.”  Most observers are confident that the cryptocurrency ecosystem in Argentina is still operating under the radar of the traditional political class and policymakers,  which bodes well for crypto’s ability to innovate unimpeded by misplaced regulation, creating the climate for an optimal disruption of a failed economic system.

Russia

“…Russians are switching to crypto as a result of the chaos caused in their daily financial lives…”

In early February, Russia legalized cryptocurrency, after initial efforts to outlaw crypto mining and crypto trading.  Russian legalization bt the world’s 12th largest economy is seen by many as a seminal legal and regulatory fast on the heels of the 5th largest economy, India, legalizing and regulating digital virtual assets.

According to Coindesk:   In Russia (population 144 million), residents own over 12 million cryptocurrency accounts and about 2 trillion rubles ($26.7 billion) worth of crypto, according to the government’s document (PDF in Russian).  It says the country ranks third in the world in bitcoin mining, a share the Cambridge Centre for Alternative Finance agrees with. With such a large volume of crypto, law enforcement agencies are concerned they can’t adequately approach crimes involving crypto, the document said.  (1)

On February 8th,  Russian legislators released a document setting the principles for the regulation of cryptocurrencies, including:

• The government stopped short of the draconian measures suggested in January by the Bank of Russia. The central bank’s report called cryptocurrencies a threat to Russia’s financial stability and rife with fraud. The regulator suggested banning cryptocurrency trading in Russia, as well as mining.
• Russians will have access to the digital ruble, the central bank’s digital currency in the works by the Bank of Russia, and digital assets issued inside the country by licensed companies.
• cryptocurrency purchases in Russia may take place, but only through locally registered and licensed companies so that users are fully verified and information about their transactions can be made available to government agencies.
• The document does not address cryptocurrency mining.
• Many of the stipulations require parliament to pass new laws.
• Banks working with crypto exchanges would be required to use the Transparent Blockchain transaction tracking tool developed by Rosfinmonitoring (Russia’s FinCEN equivalent) not products from foreign companies like Chainalysis, Elliptic or Crystal Blockchain.
• Transparent Blockchain can help identify owners of cryptocurrency wallets using open-source data, as well as information from the darknet, detect patterns of illegal usage of crypto and serve as a register of addresses related to crimes and terrorism financing.
• the proposal was agreed on by the Bank of Russia, Ministry of Finance, Ministry of Economic Development, Federal Taxation Agency, anti-money laundering watchdog Rosfinmonitoring, and the key law enforcement bodies: Ministry of the Interior, Federal Security Service, and the Prosecutor General’s office Russia. (2).

According to Kommersant,:

• The regulatory document puts cryptocurrencies on a level with foreign currencies, which are regulated in a similar fashion.
• The new laws and directives are likely to come into force in the second half of 2022 or early 2023.  (3)

Of course, we have to consider the Russian cryptocurrency ecosystem in the shadow of the recent Russian invasion of Ukraine.

• Decrypt.co reports that “Russia provides an estimated 11% of the blockchain network’s hashpower” and that “bitcoin mining in Russia is largely unaffected amid Ukraine Invasion.” (4)
• There are also reports that Russia may use cryptocurrency to avoid US sanctions over the invasion of Ukraine.
• Just today, we reported via the OODA Loop Daily Pulse that Russians are switching to crypto as a result of the chaos caused in their daily financial lives at the hands of aggressive global sanctions directed at the Russian government and economy.

Further Resources:

Bitcoin jumps back above $40,000 as Russians switch to crypto

Global Crypto and Digital Currency Initiatives: El Salvador, Panama, and Ukraine

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