Bloomberg News

Russia Backs Bitcoin Curbs as Central Bank Snubs Sberbank Plan

January 27, 2014

Bitcoin deals in Russia may fall afoul of anti-terrorism laws, the central bank warned after virtual currencies were championed last week by the head of state-controlled OAO Sberbank.

Transactions such as purchasing rubles or goods and services with virtual currencies may be treated as “dubious” operations under laws against money laundering and financial terrorism, the central bank said today in a website statement.

Bitcoin, a five-year-old protocol for issuing and moving money across the Internet, plunged at the end of last year as China’s largest online market stopped accepting deposits and authorities from India to Scandinavia sought to impose restrictions. Venture capitalists see promise in the digital money as an alternative to the global payment system dominated by companies including Visa, Western Union Co. (WU:US) and large banks.

At best, users face a high risk that virtual money will lose value, the central bank said. At worst, they “may become involved, including unintentionally, in illegal activity such as the legalization (money laundering) of criminal gains and financing terrorism.”

Issuing “money surrogates” is illegal in Russia, the regulator said.

Sberbank Chief Executive Officer Herman Gref, who was economy minister during President Vladimir Putin’s first two terms in office, said last week that he’d urged the Kremlin, Bank Rossii and the Finance Ministry to stop lawmakers from barring cryptocurrencies. Elvira Nabiullina, the central bank’s governor, was Gref’s deputy at the economy ministry.

‘Step Backward’

“It’s a very interesting global experiment that breaks the paradigm of currency issuance,” Gref said in an interview at the World Economic Forum in Davos, Switzerland, last week. A ban would be a “colossal step backward.”

Gref had said in December that Russia’s biggest lender may form its own virtual currency based on its online payment service, Yandex.Money.

Bitcoin was introduced in 2008 by a programmer, or group of programmers, known as Satoshi Nakamoto. There are 21 million possible Bitcoins that can be mined by a peer-to-peer network harnessing computers to complete complicated mathematical calculations. The price of Bitcoins soared in November, topping $1,000 for the first time, as speculators anticipated broader use of digital money. It dropped at the end of the year as nations started taking an official stance against its use.

To contact the reporters on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net; Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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