Russian Farmer Alters Rural Economy With Virtual Currency, as Moscow Watches Warily

KOLIONOVO, Russia—Farmer Mikhail Shlyapnikov says the best way to revive the ailing economy in this remote village is cutting financial ties to Moscow.

Mr. Shlyapnikov has launched a cryptocurrency, the kolion, named after his hamlet some 80 miles southeast of Moscow, buoyed by an initial investment of a half-million dollars from investors in Russia and abroad.

Since its launch last year, the currency is slowly becoming a tender of choice here and in surrounding towns for transactions, from milk to tractors.

“You don’t see many rubles around here,” Mr. Shlyapnikov said outside his log home one recent day. “We have our own country here, our own currency. We do pretty well for ourselves.”

Russia, like many other countries, is weighing whether to embrace or ban cryptocurrencies as President Vladimir Putin orders up rules for the unregulated industry by the summer. As part of their efforts, officials are monitoring Mr. Shlyapnikov’s experiment to understand how cryptocurrencies work.

Stepping into this regulatory breach is Mr. Shlyapnikov, a self-described agro-anarchist, who is making a unique test of self-sufficiency in the rural region he says has long been neglected by Moscow.

His efforts highlight the divide in Russia between more-prosperous cities and isolated rural communities. As money from gas and oil sales poured into Russia over the last two decades, a middle class emerged in urban centers that uses imported technology and takes holidays abroad. But in small villages, poverty reigns amid crumbling infrastructure, dwindling populations, and poor government services.

Mr. Shlyapnikov, a portly man with a grey beard who is known locally as Uncle Misha, wants to expand the use of the kolion so that residents of Kolionovo and other nearby villages can pay each other for municipal services like snow and trash removal, which are already largely performed by residents themselves.

For now, he says he’s gotten almost 100 others to use his currency, mostly selling and buying vegetables and dairy products in the poor region.

He has expanded the use of kolion in the local economy through a loan system where he provides aspiring farmers with an incubator and 50 chicks. The chicks grow into chickens and start laying eggs. The farmer gives half the eggs back to Mr. Shlyapnikov and can sell the other half as they see fit.

There’s only one condition: the transactions should be made in kolions.

“Banks don’t want to lend to small farmers,” said Mr. Shlyapnikov. “So we created our own currency.” He said he wasn’t personally profiting, and appeared to live frugally.

The tactic is popular in a part of rural Russia where residents don’t have access to affordable credit. Russian banks have tried to raise penetration in small towns and villages, and Russia’s postal service opened a bank in 2016, hoping to fill the gap. But interest rates at most retail banks are often high at more than 10%.

Financial instability after the 1991 fall of the Soviet Union fueled flirtations with a variety of alternatives to traditional financial instruments that ended badly, including the vouchers Soviet factories issued to their workers and the giant MMM Ponzi scheme of the 1990s.

Cryptocurrencies have sparked new interest in the possibilities of working outside the Russian financial system and the volatile ruble, which lost half of its value in 2014 due to a drop in oil prices.

“Uncle Misha seized his moment,” said Ioann Voronin, a cryptocurrency expert and founder of trading platform Tradisys. “When he launched the kolion there was huge interest from investors in cryptocurrencies and he’s working to make it part of a real economy.”

Cryptocurrencies, used with decentralized online ledgers to track transactions, have become a popular alternative currency both for investment and in the real economy. Online vendors are increasingly launching their own cryptocurrencies that can be used for the goods and services they provide.

Since its launch, kolion’s value has largely followed the same rollercoaster trajectory as Bitcoin, the first decentralized worldwide digital currency, but Mr. Shlyapnikov isn’t deterred.

“There are ups and downs in trading, but at the end of the day, in Kolionovo you will always be able to buy milk with it, you can buy meat with it,” said Mr. Shlyapnikov.

Igor Levitin, a former collective farm worker, says he has signed on to Mr. Shlyapnikov’s kolion economy and now has two goats and 300 chickens, all of which were bought with kolions. Some of the chickens, he says, were provided by Mr. Shlyapnikov in the form of a loan. Now a portion of the eggs go back to Mr. Shlyapnikov and others he can sell for rubles or kolions.

“When you live out in the wilderness, you try to get by even with cryptocurrencies,” he says.

Mr. Shlyapnikov even bought a used tractor with it last year, paying 4,500 kolions, then worth about $10,000.

Mr. Shlyapnikov hopes Kremlin regulations allow him to continue to see his experiment out. After all, he has had his run-ins with the law before.

In 2015, Russian authorities cracked down on his experiment to introduce his own paper currency—also called the kolion—into the region. Unlike the cryptocurrency, the paper kolion was tied to a kilogram of potatoes. After local authorities caught wind of the experiment, a local prosecutor banned the kolions, saying that they could destabilize Russia’s constitutional order.

The paper kolions were ultimately seized and Mr. Shlyapnikov had to agree to stop using them as currency.

“That’s why I jumped at the chance to start a cryptocurrency. The lack of regulation is an opportunity and I took it,” he said.

By: Thomas Grove

Source: WSJ

Link: https://www.wsj.com/articles/russian-farmer-alters-rural-economy-with-virtual-currency-as-moscow-watches-warily-1524398400

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