Cryptocurrencies Could Offer a Way for Russia To Escape Sanctions Over Ukraine

While focus has largely been pinned on tanks rather than stocks, the globe’s finances are in tremendous upheaval.

The floor of the New York Stock Exchange February 24, 2022. Courtney Crow/New York Stock Exchange via AP

Could cryptocurrencies provide a way for Russia to escape sanctions for its war on Ukraine? With Russian rockets flying over Kiev and war returning to the bloodlands of Europe, it is not only territory that will feel the response to President Putin’s tanks and imperial ambitions. 

The worldwide economy is also bearing the brunt of Russia’s gambit, as everything from raw materials such as oil and gas to the strange new products of the blockchain like Dogecoin gyrate in response to the Kremlin’s maneuvers.

While focus has largely been pinned on tanks rather than stocks, the globe’s finances are in tremendous upheaval. Russia’s ruble has fallen to its lowest level ever against the dollar and its stock market has shed nearly half its value.

Oil prices worldwide have ballooned to more than $100 a barrel. Britain’s prime minister, Boris Johnson, has promised “the largest and most severe package of economic sanctions that Russia has ever seen.”

President Biden, in a press conference today, announced sanctions on some of Russia’s largest banks and stated a goal to “impair their ability to participate in the 21st century economy.” He mentioned that personal sanctions against Mr. Putin were “on the table,” though they have not yet been imposed.       

One specific measure that has attracted speculation is cutting Russia off from SWIFT, a global payment system co-owned by 2,000 banks around the world. SWIFT is a financial messaging system that processes trillions of dollars in payments a day. 

Obscure but essential, it manages the channels that make the world’s economy whir. Asked about it at his press conference, Mr. Biden demurred on taking that sanctions step now. He suggested that there was opposition to the move, saying “that’s not the position that the rest of Europe wishes to take.”  

Ukraine’s president made his country’s wishes clear, tweeting, “We demand the disconnection of Russia from SWIFT, the introduction of a no-fly zone over Ukraine and other effective steps to stop the aggressor.”   

Conjecture has turned to the whether the off-grid world of cryptocurrency might provide safe haven for a regime with a larger territorial footprint but diminished ties to the global financial system. 

The cryptoworld has likewise felt shock from the decidedly analog carnage in Eastern Europe. On the night of the invasion, Bitcoin fell 8 percent. Ethereum, another currency, is down 7 percent. The crypto market as a whole shed $160 billion after Mr. Putin invaded Ukraine.  

Despite these fluctuations, if financial doors slam shut on Russia, the world of “anonymous wallets,” where cryptocurrency is stored, might be an attraction for the strongman whom Mr. Biden vowed to make a “pariah” on the international stage. 

A dramatic turn by Russia toward cryptocurrency would mark a profound shift in the relationship between international politics and the blockchain and precipitate the question of how the West should respond.

For a technology whose essence is anonymity, transparency,  and freedom from external regulation and surveillance, it is a time of testing. 

The possibility of a Russian flight to cryptocurrency comes as the Biden administration is eyeing domestic regulation and also when the mandarins at the Federal Reserve are mulling what to do about money’s medium. These considerations will suddenly assume a more international context. 

Russia is no stranger to cryptocurrency. It has already taken steps to digitize the ruble, which along with its amassing of dollars indicates a strategic interest in financial independence. 

In this respect, Russia might look to its neighbors in the Near and Far East for how to live and profit away from the well-lit squares of global finance. This reality sets in even as Wired magazine reports that Ukrainian opposition to Mr. Putin’s war has itself benefited from crypto donations.   

If Mr. Putin does turn to cryptocurrency to fund his military adventurism, he will have examples with which to work. Reuters has reported that North Korea’s dealings with cryptocurrency have generated an important revenue stream for Pyongyang. 

Iran has mined bitcoin to evade sanctions, as well. These rogue states could provide a preview for what life will look like for Russia after its assault on Ukraine.  

What remains to be seen, however, is whether the lure of cryptocurrency guides Mr. Putin to a safe economic harbor or just further estranges him from a world order he appears to be intent on destabilizing.

The New York Sun

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