EU sanction threats over Russia ties loom as Kyrgyzstan amends crypto rules

The authorities in Kyrgyzstan have updated the country’s digital-asset legislation to add specific terms for cryptocurrencies and stablecoins and regulate mining by state-controlled entities.

The changes come after recent reports unveiled that the European Union is preparing to up the sanctions pressure on the Central Asia nation.

The latter has been accused of helping Russia to circumvent Western restrictions, including through domestic crypto platforms, a locally issued ruble-pegged stablecoin, and its banking system.

President takes control over issuing cryptocurrencies in Kyrgyzstan

Kyrgyz President Sadyr Zhaparov has signed a bill amending the law “On Virtual Assets” to better regulate the country’s cryptocurrency sector.

The new provisions introduce legal definitions for stablecoins and “tokens,” as cryptocurrencies have been officially described, local and regional media reported.

They also regulate the government’s participation in digital currency mining, directly or through state-owned companies, aimed at building a national crypto reserve, supporting blockchain projects, and boosting the development of Kyrgyzstan’s digital economy.

Requirements for other mining enterprises have been clarified as well. These businesses will be subject to mandatory registration and certification.

Miners will have to inform the state about the crypto wallets they are using to accumulate the minted coins and meet a set of technical and fire safety standards.

Under the refreshed legislation, the concrete procedures for issuance and circulation of cryptocurrencies will be determined by Zhaparov himself and his administration, the Rossiyskaya Gazeta newspaper noted in an article on Wednesday.

The President has also been granted powers to launch pilot projects to test innovative services and technologies in the space.

According to the amendments, only coins backed by other assets will be issued in Kyrgyzstan, and the process will be strictly regulated by the government.

Kyrgyzstan to become Central Asia’s stablecoin hotspot

Kyrgyzstan has already issued two stablecoins – the U.S. dollar-pegged USDKG and KGST, which is tied to the national fiat, the Kyrgyz som. Both are meant to be used for settlements, including international.

USDKG, which was launched in November, is backed by gold, and the authorities in Bishkek hope it will strengthen Kazakhstan’s position in the global financial system and attract foreign capital and business.

The KGST coin was developed as part of the country’s central bank digital currency (CBDC) project and is backed by reserves held in state-owned banks.

The plan is to list both, initially on domestic and regional crypto exchanges and eventually on global platforms, according to the agency for blockchain development under the head of state.

Another stablecoin, the ruble-pegged A7A5, has created a lot of headaches for Kyrgyzstan. The coin was developed in Russia and is currently issued by a Kyrgyz-registered company.

The crypto and related entities, including Kyrgyz platforms and banks, have been targeted with sanctions by the U.S., the EU, and the U.K. over its suspected use to bypass financial restrictions imposed on Russia in response to its invasion of Ukraine.

Launched in early 2025, A7A5 now accounts for nearly half of the non-dollar stablecoin market. According to a recent study by the blockchain analytics firm Elliptic, the coin has processed over $100 billion worth of transactions in less than a year, as reported by Cryptopolitan.

EU set to slap new sanctions on Kyrgyzstan

The latest amendments to Kyrgyzstan’s crypto law come amid media reports that the European Union is preparing to hit Russia’s ally with new sanctions.

Last week, Bloomberg revealed that the EU is considering ways to increase the pressure on Bishkek such as activating a mechanism to ban certain exports to the former Soviet republic.

The measure allows Brussels to restrict the supply of sensitive goods to a given country. The mentioned categories in the case of Kyrgyzstan include machine tools and radio equipment.

This week, the Kyrgyz government announced they are initiating consultations with the European Union as a reaction to the reported preparation of Russia-linked sanctions against the country.

Deputy Prime Minister Daniyar Amangeldiev told local media that an online meeting with the EU Sanctions Envoy David O’Sullivan may take place soon.

Amangeldiev noted the absence of an official confirmation of the media reports and insisted that Kyrgyzstan has already restricted its exports of dual-use goods, emphasizing he sees no grounds for European sanctions.

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