Russia’s Credit Rating Agency: Cryptocurrencies Not Yet Usable as Money

Cryptocurrency is not yet usable as a means of payment in Russia, states a report from the Russian Analytic Credit Rating Agency (ARCA) released Thursday.

“Cryptocurrency does not currently fully perform any of the functions of money, as the exchange rate volatility is too high — comparable with the volatility of food prices — to allow it to be efficient as payment,” the report says.

The document also notes that the use of crypto “does not yet reduce transaction costs in the economy” due to its “energy inefficiency […] lack of economies of scale in the provision of cybersecurity [and] the low speed of entries in the register [blockchain]:”

“All of these factors lower the value of the potential advantage, which is the reduction in the number of intermediaries in settlements (of banks).”

ARCA analyst say that a comparison of crypto with fiat currencies with “their own intrinsic value” highlights how cryptocurrency’s market value is “formed mainly on expectations of investors’ readiness to sell it in the future at a higher price.”

The factors that could increase the use of cryptocurrency, according to ARCA, including the “toughening of sanctions against the backdrop of growing foreign policy and external economic tensions.”

During his annual live Q&A session with the public, Russian president Vladimir Putin spoke ambiguously but mainly negatively about cryptocurrency.

However, Putin did note that Russia will look into how they can use cryptocurrency to “avoid any restrictions in the field of international financial activity,” which could have been a reference to avoiding the Western sanctions currently imposed on the country.

The ARCA report concludes the cryptocurrency use in the future of Russia is unlikely to become widespread due to the “fairly tough approach to regulation by the Central Bank of the Russian Federation, high investment risks, an inadequate number of companies ready to accept payment for their goods and services in cryptocurrency, […] and lack of guarantees for the safety of funds inherent in traditional money.”

Russia’s major crypto and blockchain-related bill, “On Digital Financial Assets,” was almost unanimously approved during its first reading at the end of May in the State Duma. The final version of the crypto regulation legislation is set to be passed by July 1.