Putin Embraces Cryptocurrency as Russia Circumvents Sanctions

Russian President Vladimir Putin made an unusual virtual appearance in September, inaugurating a new A7 payments network branch in Vladivostok. A7 is not a traditional high street bank but a crypto-centric financial platform, co-owned by sanctioned Moldovan oligarch Ilan Shor and the Russian state defence lender Promsvyazbank. The event marked a dramatic shift in Russian policy, given recent efforts by authorities to restrict cryptocurrencies due to perceived threats to financial stability and concerns surrounding political opposition funding.

The introduction and escalation of Western sanctions following Russia’s invasion of Ukraine have prompted a transformation in the methods Russian businesses use for international commerce. Whilst most Russian trade remains technically legal, the risk of secondary sanctions has deterred global banks from processing Russian payments, accentuating the need for alternative financial channels. Digital currencies, operating mainly outside the regulated banking sector, have stepped into this void as Russia seeks to bypass restrictions on international transactions.

Since June last year, changes to US sanction protocols have made cross-border trade increasingly complex for Russian entities. Digital assets now provide a critical workaround, according to Tom Keatinge, founding director of the Centre for Finance and Security at the Royal United Services Institute. Russian companies can convert roubles into cryptocurrency, moving into a parallel system largely free of regulatory oversight and legal checks.

During the A7 opening, Shor claimed that the network had facilitated over 7.5 trillion roubles in international settlements for Russian businesses within ten months of its launch, with over half of these payments routed to Asian nations. There is scepticism regarding the stated figures, but even conservative estimates indicate a notable rise in crypto-facilitated Russian trade. The Russian government has started to institutionalise this approach. In August 2024, Putin signed legislation allowing regulated crypto mining and authorising trials of digital tokens for cross-border transactions, following initiatives from the Russian Central Bank.

Central to this shift has been the launch of the A7A5 rouble-backed stablecoin in January this year. Each digital unit is pegged to a rouble held by Promsvyazbank. Since January, transactions involving A7A5 have exceeded eighty seven billion dollars in value, held across over thirty thousand accounts. Data from analytics firms indicates that A7A5 is primarily used by businesses to facilitate currency conversion and on-ramping roubles into US dollar-based stablecoins such as Tether, which are then deployed for international payments, particularly with suppliers in China.

Despite the scale, converting A7A5 into US dollar stablecoins remains constrained. The global market for Tether, for example, cannot absorb very large transactions required for oil and gas exports. The liquidity shortfall means crypto solutions are used mainly for purchasing strategic components such as electronics and microchips, with exchanges based predominantly in Asia. A network of informal exchange venues, particularly in Hong Kong, has played a significant role in converting crypto into cash to fund trade with Russian businesses.

Western responses have included sanctions targeting crypto exchanges and stablecoins associated with Russia. The European Union recently prohibited its citizens from conducting transactions involving A7A5, but market data reveals only a temporary fall in trading activity, which swiftly returned to previous levels. Analysts warn that continuing to focus exclusively on disrupting Russian oil revenue, whilst neglecting the avenues through which those resources are spent, could undermine the effectiveness of sanctions. The use of cryptocurrency has become an essential pillar of Russia’s strategy for sustaining its global trade under ongoing international constraints.