Russia looks to Bitcoin to soften US sanctions

Russia is preparing an investment in Bitcoin to replace the US dollar as a reserve currency. Photo / 123RF

Russia is preparing an investment in Bitcoin to replace the US dollar as a reserve currency in a bid to tackle US sanctions, according to a Russian economist with close ties to the Kremlin.

Vladislav Ginko, an economist at the Russian Presidential Academy of National Economy and Public Administration, a state-funded institution, said the government is taking steps to minimise the impact of US sanctions that have hit the Russian rouble by replacing some of its US dollar reserves with the most popular cryptocurrency.

US sanctions follow the poisoning of former Russian military officer Sergei Skripal. Ginko believes Russia's decision is a move to "protect its national interests".

He claims investment could be as much as US$10 billion ($14.6b).

Cryptocurrencies have seen a surge of interest in Russia, with President Vladimir Putin expressing interest in the digital assets in recent months.

Ginko believes Bitcoin and the wider cryptocurrency industry now account for 8 per cent of Russia's GDP, and investment to bolster the country's reserves with Bitcoin could start as soon as February.

"[The] Russian government is about to make a step to start diversifying financial reserves into Bitcoin since Russia [is] forced by US sanctions to dump US Treasury bonds and [take] back US dollars," Ginko said.

"These sanctions and the will to adopt modern financial technologies lead Russia to investing its reserves into Bitcoin."

The Central Bank of Russia is yet to publish official plans, but said in a statement that it "publishes information on the foreign assets management with a six-month lag".

The country has shown signs of de-dollarisation by boosting its holdings of the euro, Chinese renminbi and Japanese yen.

Mati Greenspan, senior market analyst at eToro, said that there is "definitely an interest from the [Russian] government to do this".

Bitcoin saw a drastic sell-off in 2018 that saw its market capitalisation slip from US$230.9b in January to US$66.6b by the end of December.