Ukraine crisis: Can Russia use cryptocurrency to circumvent sanctions?

The Western world has imposed sanctions on Russia because of its invasion of Ukraine. Russia is no stranger to sanctions. Its economy has suffered as a result of sanctions in the past. Previously, the sanctions placed after the Russian invasion of Crimea cost the country’s economy $50 billion. 

However, despite the impending harsh sanctions, Russia may have found a formidable new financial option to evade the sanctions.

The US dollar is the world's reserve currency and is utilised for international payments. By imposing sanctions, the US leverages this tool to influence global politics. However, cryptocurrencies and digital currencies, which are relatively new entries into the global financial system, might change the whole picture.

Cryptocurrencies are essentially borderless and not regulated by central banks and governments. Central banks of sanctioned nations can use digital currencies to transact directly with their trade partners, bypassing the global banking system entirely. In its Treasury Sanctions Review for 2021, the US Treasury acknowledged this challenge.

In October 2020, representatives from Russia's central bank told a Moscow newspaper that the "digital ruble" would minimise the country's dependency on the US and increase its ability to withstand sanctions 

Russia would not be the only country to employ these tactics to circumvent the sanctions placed by the Western world. According to a UN report, Iran and North Korea have used cryptocurrencies to escape the blow of sanctions.

Iran has also been reportedly using crypto mining to generate income for the country while facing tough sanctions from the US.

The UN report also claims that North Korea used ransomware to steal cryptocurrencies from the KuCoin cryptocurrency exchange in order to fund its nuclear development.

Russia might also do the same. A recent study by Chainalysis highlighted that Russian cybercriminals have driven significant ransomware and cryptocurrency-based money laundering activities in the past years.

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