Russia Turns to New Cryptocurrency Amid Sanctions
In response to being excluded from the SWIFT international banking system and facing numerous sanctions, Russia is reportedly exploring the use of a new cryptocurrency known as A7A5 to facilitate financial transactions both in and out of the country. Experts have indicated to AFP that this move aims to circumvent the financial restrictions imposed by Western nations following Russia’s military actions in Ukraine beginning in February 2022. With several rounds of sanctions targeting Moscow, the introduction of A7A5 in February has provided Russian businesses and individuals with an alternate payment solution for engaging with foreign partners, as noted by the UK-based Centre for Information Resilience (CIR).
A7A5: A Strategic Financial Tool
A7A5 is classified as a stablecoin, a type of cryptocurrency that is typically backed by conventional assets. In this instance, it is pegged to the ruble, which makes it less susceptible to oversight by Western authorities compared to dollar-pegged cryptocurrencies. The stablecoin was created by a pro-Russian Moldovan oligarch in collaboration with a Russian state-owned bank, marking it as the first stablecoin tied to the ruble, according to George Voloshin of the anti-money laundering organization ACAMS. Although its usage is currently limited, experts believe that the establishment of A7A5 signifies a crucial advancement in Russia’s strategy to lessen its reliance on major cryptocurrency platforms that align with Western regulations.
Russia’s Shift to Cryptocurrency
Following expulsion from the SWIFT system and enduring asset freezes and investment bans, Russia has increasingly turned to cryptocurrencies to navigate the financial limitations enforced by the United States and its allies. The appeal of stablecoins lies in their relative stability compared to other cryptocurrencies, making them more attractive for transactions. Additionally, cryptocurrencies have been utilized for direct donations to both the Ukrainian military and Russian militias, according to analytics firms like Elliptic. However, Russia has encountered challenges, particularly with USDT, the leading stablecoin, which is linked to the US dollar and controlled by Tether, a company that collaborates with US and European regulatory bodies. Earlier this year, Tether restricted access to $28 million in USDT held on Garantex, Russia’s largest crypto exchange, which was subsequently shut down amid a global crackdown on illicit transactions. “That was a real wake-up call” for Russia, remarked Elise Thomas, a senior investigator at CIR, emphasizing the urgent need for Russia to develop its own stablecoin that it could control.
Mechanism of A7A5
A7A5 is supported by deposits at Promsvyazbank, a Russian financial institution already facing sanctions due to its connections with the government and military. The cryptocurrency is traded on Grinex, an exchange located in Kyrgyzstan, a nation perceived as more accommodating to Russian interests and less susceptible to Western influence. A7A5’s registration in Kyrgyzstan rather than in Russia is strategically advantageous, as the country provides a more favorable legal framework for cryptocurrencies and is less affected by international sanctions, as stated by project director Leonid Shumakov in an online interview. Within six months of its launch, about $150 million has reportedly been invested in A7A5. While these financial activities may not be outright illegal, they could pose challenges if utilized by sanctioned individuals or organizations attempting to reintegrate into the global financial landscape, cautioned ACAMS’s Voloshin.
Political Implications of A7A5
The individual behind the A7 group, responsible for the development of A7A5, is Ilan Shor, a Moldovan businessman and politician currently residing in Russia. Investigative findings have revealed connections between A7A5 and Shor’s political endeavors in Moldova, including shared IP addresses of related websites. This has raised concerns that the cryptocurrency could serve as a means of political leverage. Shor and his enterprise have already been subjected to sanctions by the UK and more recently by the European Union, which accused them of attempting to interfere in Moldova’s upcoming presidential election and its referendum regarding EU membership, all while maintaining close ties to Moscow.
