(Bloomberg) -- Russian commodities firms struggling to execute financial transactions with Chinese counterparts have started tapping a new method for settling deals — stablecoins.
Two major metals producers, operating without sanctions, have initiated the use of Tether Holdings Ltd.'s stablecoin and other cryptocurrencies to handle certain cross-border transactions with predominantly Chinese clients and suppliers. This move, while not publicly disclosed, indicates a shift towards blockchain technology, notably two years following the onset of the February 2022 Ukraine invasion. The enduring impact of international restrictions, stemming from the conflict, has hindered Russian firms dealing in various commodities, from metals like nickel and steel to timber, in receiving payments and procuring essential equipment and materials. These challenges persist even for unsanctioned companies, albeit exacerbated for those facing multiple penalties from the US, the European Union, and their allies.
In China, despite its non-participation in international sanctions, financial transactions have become increasingly complex this year. This can be largely attributed to the US Treasury Department's threats of secondary sanctions on lenders facilitating sanctions evasion, prompting a tightening of compliance protocols. Consequently, utilizing stablecoins offers a viable solution, with transactions completed in a matter of seconds and at minimal costs, especially advantageous for exporters already possessing assets in stablecoins. Tether's USDT stablecoin, pegged to the US dollar, enhances convenience for exporters, reducing the risk associated with slower transactions or the potential freezing of overseas bank accounts, a predicament faced by some unsanctioned companies, which have resorted to opening numerous accounts in different countries, only to see them frozen successively.
In regions grappling with dollar liquidity challenges and capital controls, such as in countries facing sanctions, cross-border settlements via cryptocurrencies, particularly dollar-pegged stablecoins, have become commonplace, extending beyond commodities trading. This shift towards cryptocurrency payments reflects evolving dynamics in international finance, underscored by the increasing role of cryptocurrencies in facilitating transactions, especially evident in countries subject to sanctions. For instance, Venezuela, boasting the world's largest proven crude reserves, increasingly conducts cargo transactions using Tether, often brokered through intermediaries based in Dubai, albeit at discounted rates.
Moreover, the growing acceptance of cryptocurrencies for settlements signifies a departure from the Russian central bank's previous stance towards the industry. While initially contemplating a blanket ban on all cryptocurrency usage and creation, Governor Elvira Nabiullina expressed support for experimenting with cryptocurrency payments in international transactions during a parliamentary session in November. Nonetheless, the central bank has cautioned lenders against publicizing cryptocurrency payments, emphasizing their suitability solely for cross-border transfers. Legislative discussions are underway to establish a legal framework for the use of stablecoins in international transactions, indicating a broader recognition of their utility in the financial landscape.
Furthermore, there has been a notable uptick in cryptocurrency activity among Russians in recent quarters, as acknowledged by the central bank. Concurrently, the availability of crypto-linked banking services in Russia is expanding, with Rosbank, owned by billionaire Vladimir Potanin, leading the way by initiating cross-border cryptocurrency payments for businesses in June of the previous year. Subsequent to this, other banks have followed suit, offering similar services.
Alternatively, some commodities firms have adopted unconventional methods for transaction settlements, such as barter deals, where the exchange of commodities for goods shipped to Russia circumvents the need for cross-border transfers altogether