Leningrad Oblast Looking to Legalize Bitcoin for Estonian, Finnish Trade

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Leningrad Oblast in Western Russia, a region that has significant borders with EU nations, has asked the Russian Federal Bank to legalize the use of the cryptocurrency – bitcoin. Cryptocurrency is a type of digital currency in which encryption techniques regulate the generation of units of currency and verify the transfer of funds, which operate independently of a central bank.

The request to legalize bitcoin use in Leningrad Oblast has been made to specifically permit the use of bitcoin in trading with Estonia and Finland. The oblast is bordered by Finland to the northwest and Estonia to the west, as well as five federal subjects of Russia: the Republic of Karelia in the northeast, Volgoda Oblast in the east, Novgorod Oblast in the south, Pskov Oblast in the southwest, and the federal city of Saint Petersburg in the west.


Leningrad Oblast was established on August 1, 1927, although it was not until 1946 that the oblast’s borders had been mostly settled in their present position. The oblast was named after the city of Leningrad (now St.Petersburg). Unlike the federal city, the oblast retains the name of Leningrad.

It is understood that unofficial trade in bitcoin between Leningrad Oblast and Estonia has already reached some €50 million. The three primary movers behind the Russian request are Vladimir Petrov, the Deputy in the region’s Legislative Assembly, Viktor Karpenko, the Mayor of Ivangorod, and Marina Chistova, head of the Slantsy district. The trio formally requested the Bank of Russia last week to “Legalize the circulation and exchange of cryptocurrencies in the border areas of the Leningrad region”, according to the local newspaper Vesti.

Three border districts were named in particular; Kingiseppsky, Slantsevsky, and Vyborgsky. Within the region, the Kingiseppsky and Slantsevsky districts border Estonia whereas Vyborgsky borders Finland. Their administrative centers are the towns of Kingisepp, Slantsy, and Vyborg respectively, while Leningrad Oblast is well connected to Estonia and Finland by road, rail and sea. It can accurately be described as part of China’s One Belt One Road initiative and is a major thoroughfare from China and Asia, across Russia and into the EU.

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Petrov was on record as saying “The measures will increase the attractiveness of Kingiseppsky and Slantsevsky districts to neighboring Estonia, and Vyborgsky district, which is located near the border with Finland.” Petrov explained that the Leningrad region borders multiple European Union countries, where bitcoin adoption is much further ahead than in Russia, and is actively used in both Estonia and Finland. However, transit passengers from border countries arriving in Russia may not have the correct currency to spend, and Russian ATMs do not provide access to large sums of cash. Allowing cryptocurrency payment in border areas “could help boost the number of visitors, both from the European and Russian side,” he said. Estonian and Finnish businessmen and foreigners transiting through these countries to Russia would be able to stay in the border areas, eat, and fill their vehicles with fuel. The plan would be to establish cryptocurrency exchange points on the border areas with Estonia and Finland and open special shops and cafes where visitors can pay by bitcoin.

The Russian ombudsman for business rights, Dmitry Marinichev, supports the idea of politicians lobbying for the use of cryptocurrencies in the Leningrad region. “In general, I support the idea of people using cryptocurrencies. Even though the proposal is of a populist nature, I support it because so many people are beginning to understand how it functions, and as it offers a variety of new technological innovations in their lives.”
Russia currently bans bitcoin from use and has security concerns such as money laundering and the financing of terrorism. It has also been pondering the launch of its own Cryptocurrency.

Consequently, there are complex legal and legislative issues to overcome. However, Russia has been examining Japan’s experience in cryptocurrency regulation and should the Russian Federal Bank be minded to offer Leningrad Oblast the ability to set up a limited pilot scheme for six-twelve months as a test case, it can be expected to follow the Japanese model. Russia can also follow the example of China, which also allows trade in bitcoin. Customers can exchange RMB at various bitcoin dealerships in the PRC and obtain bitcoin credits. Looking further ahead, I recently posed the question “Which currency will be used along the Silk Road?“. Should the Russian Federal Bank decide to give bitcoin a trial in Leningrad Oblast’s border regions with Estonia and Finland, the implications for not just Russian-EU trade, but for the entire OBOR routes could be highly significant.

Chris Devonshire-Ellis is the Founding Partner and Chairman of Dezan Shira & Associates. He is based in Europe. The firm provides European businesses and governments with strategic, legal, tax and operational advisory services to SMEs and MNCs investing throughout Eurasia and has 28 offices across China, India and the ASEAN nations as well as St. Petersburg and Moscow. Please contact the firm at asia@dezshira.com or visit the practice at www.dezshira.com


Russia Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, the Silk Road & Vietnam. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Eurasian region. We maintain offices in Moscow and St.Petersburg through our Russian partner firm, as well as our own offices in China, South-East Asia and India. For assistance with Russian issues or investments into Russia and Asia, please contact us at russia@dezshira.com or visit us at www.dezshira.com


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