Russia and China Leverage Stablecoin USDT for Key Transactions

ByTim Russert

May 29, 2024

Amid escalating international sanctions, Russia is adopting a new approach to sustain its trade with China by utilizing stablecoins such as Tether (USDT). This pivot to cryptocurrencies is allowing Russian firms to effectively settle transactions with Chinese partners, circumventing the financial restrictions imposed by the United States.

A recent Bloomberg report reveals that the use of USDT is becoming a crucial tool for these transactions, highlighting the growing reliance on digital currencies to navigate the challenges of global trade in a politically charged environment.

Stablecoins: A Swift and Cost-Effective Solution

Russian commodities firms, particularly those in metals and timber, have found stablecoins to be an effective solution for cross-border transactions. These companies have struggled to receive payments and procure equipment due to sanctions and tighter compliance measures.

A recent Bloomberg report indicates that stablecoins offer a swift and cost-effective alternative. Ivan Kozlov, co-founder of Resolv Labs, emphasized the efficiency of stablecoins, noting that digital currencies facilitate transfers in about 5-15 seconds at lower costs.

Moreover, the use of stablecoins helps mitigate the risk of frozen overseas bank accounts, a recurring issue for Russian firms. Despite opening multiple accounts in different countries, many have faced repeated freezes.

Regulatory Shifts and Support for Cryptocurrency Use

The report suggests that stablecoins like USDT, pegged to the US dollar, offer a more stable and secure method for these transactions. Additionally, they bypass traditional banking systems that are vulnerable to sanctions.

This growing reliance on cryptocurrencies signifies a broader shift in Russia’s regulatory landscape. The Russian central bank, which once contemplated banning all cryptocurrencies, is now open to experimenting with crypto payments for international transactions. In November, Governor Elvira Nabiullina expressed support for such trials, indicating a significant policy change.

Focus Shifts Amid Growing Adoption

The use of cryptocurrencies for international settlements is not a new strategy for countries facing sanctions. For example, Venezuela has been using Tether for oil transactions, illustrating the rising acceptance of stablecoins in global trade, particularly in areas with dollar shortages and capital controls.

Russian lawmakers are now contemplating legislation to create a legal framework for the use of stablecoins in international transactions. This development reflects a formal acknowledgment of the role cryptocurrencies can play in circumventing traditional financial barriers.

The Russian central bank has reported a notable increase in cryptocurrency activities among its citizens, suggesting a wider acceptance and integration of digital currencies into the economy. To meet the rising demand, Russian banks are broadening their range of crypto-related services.

For instance, Rosbank initiated cross-border cryptocurrency payments for businesses in June last year. Following Rosbank’s lead, other banks have also started incorporating crypto into their financial services, further embedding digital currencies into Russia’s financial infrastructure.

Exploring Alternatives and Embracing Stablecoins

Some commodities firms are also exploring alternative transaction methods, such as barter deals, to avoid cross-border transfers altogether. These deals involve swapping commodities for goods shipped to Russia, offering another way to bypass financial restrictions.

As Russia and China navigate the complexities of international sanctions, stablecoins present a promising solution for maintaining trade and financial stability. This shift highlights the resilience of cryptocurrencies and underscores their growing importance in global trade dynamics.

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