On Thursday, US President Joe Biden said the US and its allies would impose “devastating sanctions on Russia. He said the country would cut off Russia’s largest bank, Sberbank, to its financial system and impose “full blocking sanctions” on various other banks and their subsidiaries. The sanctions also targeted several Russian elites who have “enriched themselves at the expense of the Russian state”.
No SWIFT kick: Crucially, though, Biden said the measures would not extend to cutting Russia off from the SWIFT network — a payments system used across the world — in response to European officials. Doing so would have effectively prevented the Russian state and its oligarchs from being able to transact anywhere in the world.
Crypto route: Cutting Russia off from SWIFT would almost certainly cripple its economy – which it’s sometimes called “the nuclear option”. But even if the US and its allies were to take this drastic step, Russia would still be able to mitigate some of the impact of the sanctions with cryptocurrencies, various experts have claimed.
“If a wealthy individual is concerned that their accounts may be frozen due to sanctions, they can simply hold their wealth in Bitcoin in order to be protected from such actions,” Quantum Economics founder and CEO Mati Greenspan told Bloomberg this week.
Yes, but: Evading sanctions isn’t as easy as turning all your dollars into bitcoin (as you might have guessed). That’s because it’s hard to actually buy anything with cryptocurrencies, which fluctuate wildly.
What’s more, the oil trade, which accounts for a huge share of Russia’s economy, is denominated in US dollars.
And to this the real threat that cryptocurrencies, if widely adopted, could pose to the already battered Russian rouble and you quickly start to realise that this is far from a perfect solution.
Iran playbook: There are ways Russia could theoretically mitigate the pain of sanctions. One is by copying what Iran, another oil exporter, has done. The country, which has been under a near-total US embargo for decades, has figured out how to take some of the bite out of sanctions by turning to bitcoin mining, according to a report by analytics firm Elliptic.
The report estimates that 4.5% of all bitcoin mining takes place in Iran (as of May 2021), allowing the country to circumvent trade embargoes to some degree. Iran’s state-controlled power generation company revealed in January 2021 that up to 600 MW of electricity was being consumed by bitcoin miners, Elliptic said.
Crypto push: So will Russia use crypto to dampen the impact of sanctions? They’ll certainly give it their best shot. On February 18, the country’s ministry of finance introduced a cryptocurrency bill in parliament, pushing forward with a plan to regulate these digital assets.
It did so over the objections of the country’s central bank, which has suggested punishing crypto trading and issuance with fines up to 500,000 rubles ($6,360) for individuals and one million rubles for companies, the Tass news agency reported.
