As Russia’s invasion of Ukraine continues to cause reverberations around world markets, crypto is coming to the forefront.
With Ukrainian citizens begging for help, the US and its allies moved quickly to limit Russian banks’ access to the SWIFT system. As a result, the Russian ruble has plummeted by over 30% against the US dollar.
These sanctions, along with other significant actions taken to undermine Russia’s central bank, are already causing severe disruption within Russia’s consumer economy: anxious Russian citizens were lining up around the block to access ATMs on Sunday.
But these actions taken by Western powers have potentially less power than they would have, say, fifteen years ago, for two reasons.
Firstly, much of Europe has become dependent on Russia for energy, and the sanctions so far largely exempt energy exports, meaning Russia still has a financial lifeline, albeit one entirely dependent on petroleum exports.
But secondly, the last several years have seen the growth of a global, decentralized “parallel banking system” (crypto) that gives the Russian government, plus its corporations and citizens, an alternative means of moving money that is potentially beyond the ability of Western powers to control.
Not that it will stop the U.S. from trying.
The Wall Street Journal reported Friday that the Biden administration is exploring a broader range of financial measures that could inflict pain on Russia, including potential actions to sanction Russia’s crypto market.
On its end, Ukraine has asked several crypto exchanges to freeze Belarusian and Russian accounts, which would obviously impact ordinary citizens along with the local governments. Mykhailo Fedorov, Ukraine’s vice prime minister, tweeted the request, saying “it’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”
But exchanges such as Binance say they have no plans to freeze user accounts in Russia, with a statement to Coindesk stating, “We are not going to unilaterally freeze millions of innocent users’ accounts. Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists. However, we are taking the steps necessary to ensure we take action against those that have had sanctions levied against them while minimizing impact to innocent users. Should the international community widen those sanctions further, we will apply those aggressively as well.”
Without the cooperation of major crypto exchanges, it’s not clear how much ability the U.S. government will have to limit access to crypto transactions in or out of Russia. In coming days, as the Biden administration makes its plans clearer, it is likely that crypto activity in the country will only increase. Time will tell if the new “parallel banking system” of crypto is truly decentralized, as advertised.