Behind the economic sanctions of the Russian-Ukrainian war: Digital currency builds an economic corridor in the Russian-Ukrainian conflict

As Russia launched a full-scale armed attack on Ukraine, the world situation changed dramatically for a while. Behind the armed war, an accompanying economic war was also unfolding simultaneously.

On February 24, 2022, Beijing time, as Russia launched a full-scale armed offensive against Ukraine, the world situation changed dramatically for a while. Behind the armed war, an accompanying economic war was also unfolding simultaneously.

The global financial situation is turbulent. Driven by geopolitical risks and risk aversion, as well as the US announcement of a new round of economic sanctions against Russia, the prices of energy sources such as crude oil and natural gas that rely on Russian exports have been rising.

On the 27th, although NATO has not yet intervened in the Russia-Ukraine war in military action, the passage of the "SWIFT expulsion" bill, which was jointly promoted by the United States and EU countries and was hailed as a financial nuclear weapon, marked the beginning of a financial war.

In the eye of the storm of war, digital currency is playing a brand new role. On the one hand, Ukraine, which has announced the legalization of Bitcoin, is receiving assistance from all over the world through cryptocurrencies. On the other hand, facing the iron curtain of economic sanctions raised by the Western camp, digital currency is providing Russia with a brand new decentralized economic corridor.

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Ukraine is receiving assistance from the crypto world

Let’s look at Ukraine first. Before the war, Ukraine had become one of the top five countries in terms of cryptocurrency usage. Ukraine is the second country in the world to recognize the legality of Bitcoin, and is also a major mining area that uses a large amount of Bitcoin and has a large amount of Bitcoin computing power. According to relevant data, Ukraine’s daily cryptocurrency trading volume has exceeded that of its legal currency, the hryvnia.

Before the war broke out, Ukraine had already suffered from the continued decline of the hryvnia against the US dollar. The bill to legalize Bitcoin was also a choice that had to be made in the context of the increasingly difficult situation of maintaining the stability of the value of the national currency.

After the war, with a large amount of capital fleeing the country and the domestic economy stagnating, Ukraine could only seek external help economically, and cryptocurrency became a window for Ukraine to accept external rescue.

Ukraine's Deputy Prime Minister announced on Twitter that he would accept cryptocurrency donations and published the donation addresses of BTC, ETH and USDT. ChainDD checked the rescue crypto address data published by Ukraine and information from various parties. Currently, Ukraine has received more than 36 million US dollars in donations from the crypto world.

Among them, the fundraising address announced by the Ukrainian government has received 113 BTC and 2001 ETH (a total of nearly 10 million US dollars), Binance has pledged to donate 10 million US dollars to Ukraine, and Binance has initiated related crowdfunding activities. Received about 155 bitcoins (about 6 million US dollars), the Ukrainian armed organization Come Back Alive received 181 bitcoins (about 7 million US dollars), and UkraineDAO raised 1279 ETH (about 3.3 million US dollars) through the sale of Ukrainian state-owned enterprise NFTs.

After publicly expressing support for Ukraine, Ethereum co-founder Vitalik Buterin called on Twitter to provide support to Ukrainian locals through UkraineDAO.

UkraineDAO is a DAO organization launched by political activist and founding member of the punk rock band Pussy Riot Nadezhda Tolokonnikova together with members of Trippy Labs (Trippy Jetpack DAO) and PleasrDAO. Currently, Ukraine DAO is raising funds for Ukraine by minting the Ukrainian flag NFT. All proceeds will be donated to the Return Alive Foundation and the non-governmental organization Proliska to provide humanitarian aid to Ukraine.

During the current Russia-Ukraine war, cryptocurrency has become one of the main channels for Ukraine to receive donations.

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The iron curtain of financial nuclear bombs falls: Can Russia break through? Can digital currency become a corridor for Russia to break through the economic blockade?

On the other side of the front battlefield, the economic sanctions led by the United States and EU countries will be an insurmountable iron curtain facing Russia. While Russia is taking military action, Western countries quickly began to freeze the assets of Russian banks and businessmen, including the $11 billion natural gas pipeline project "Nord Stream 2" to Germany.

And yesterday (27th), the SWIFT sanctions, known as the financial nuclear bomb, finally came down. The United States, the European Union, the United Kingdom, and Canada jointly issued a statement of sanctions against Russia: some Russian banks are prohibited from accessing SWIFT.

SWIFT is a financial transaction network currently used by more than 10,000 financial institutions in more than 200 countries and regions around the world. Without the support of SWIFT, the normal flow of funds from Russia's financial network to the world will be cut off, and Russia's connection with the world will be like a door being closed with only a narrow gap left.

After the SWIFT sanctions were issued, the Russian ruble plummeted nearly 30% today, falling to a low of 119 rubles to the dollar against the United States, a record low.

Obviously, European and American countries hope to check Russia's economic ability to carry out armed actions through financial sanctions. The plunge in the ruble's market value will make Russia's subsequent economic activities difficult.

Although there is currently no channel that can effectively replace SWIFT, Russia has begun to prepare for "de-dollarization" in the past few years to deal with the possibility of SWIFT sanctions.

Since 2015, Russia has had its own system for exchanging payments and financial information, the SPFS system, and the Russian Central Bank has stated that financial transactions within the country are in any case guaranteed by the SPFS, which has sufficient resources to support stability and ensure the functioning of the Russian financial sector.

Another more thorny issue is that under the pressure of the mainstream international financial world, the Russian ruble will undoubtedly face the risk of continued depreciation, and the ruble's credit in the international payment system will be greatly reduced, which will in turn affect Russia's international economic and trade.

In this context, digital currency will undoubtedly be an ideal economic corridor for Russia to break through the economic blockade. Although digital currency still cannot become the payment currency and ideal channel of mainstream countries in terms of market volume, for Russia, digital currency is almost the best solution from the perspective of circumventing the impact of sanctions.

In the long run, Russia must get rid of its dependence on the US dollar and build a new multilateral monetary agreement that can be widely recognized by the international community.

First of all, Russia's own SPFS system has signed trade agreements using multiple currencies, and many Russian banks have also been connected to China's cross-border interbank payment system CIPS, which weakens the impact of SWIFT sanctions on Russia. Considering that the euro zone's high dependence on Russian oil and gas imports has led to incomplete sanctions, Russia has enough energy to deal with it in the short term.

On the other hand, cryptocurrency will become an effective means for Russia to get rid of financial sanctions, because the transaction records of cryptocurrency are stored in the distributed ledger of the blockchain, which is completely outside the business scope of the banking system and more convenient for the transfer of assets. The economic sanctions of Europe and the United States are heavily dependent on the bank settlement system.

In other words, digital currency can help Russia complete transactions in places where banking regulators cannot see, and Russia can use a variety of cryptocurrency-related tools to evade sanctions. The President of the European Central Bank has called for the approval of a cryptocurrency regulatory framework to prevent Russia from evading economic sanctions.

According to data released by Cambridge University in August 2021, Russia is the third largest country in Bitcoin mining, and the proportion of cryptocurrencies in the Russian financial system is much higher than in most countries. A Russian government report estimates that Russian citizens have more than 12 million cryptocurrency wallets for storing digital assets, with a total amount of funds of about 2 trillion rubles, equivalent to about 23.9 billion US dollars.

According to a report by the Russian local media The Bell, citing a report from the government's analytical center, Russia accounts for about 12% of the global crypto market. Last year, the average market value of the global cryptocurrency market was $1.87 trillion, and Russia's share was about $214 billion.

Such a mass base of cryptocurrency also provides a good soil for escaping from US economic sanctions through digital currency channels, which will largely offset the international settlement problems caused by the depreciation of the ruble.

Of course, it is not realistic to rely entirely on Bitcoin to save Russia. On the one hand, many commodity transactions do not support cryptocurrency payments. On the other hand, the transparency of the cryptocurrency ecosystem and the traceability of the blockchain will allow regulators to investigate transaction records and further propose possible means of sanctions.

But for Russia, the blockchain-based trading system will still be a supplementary means outside the SPFS system to reduce the impact of economic sanctions. Moreover, Russia has been actively promoting the process of the digital ruble. If emerging markets can eventually be brought into the blockchain market, it will also be a powerful blow to the hegemony of the US dollar and reduce the world's dependence on the US-centered international monetary system.

However, within Russia, the attitude towards cryptocurrencies is somewhat wavering. Although the government is very supportive of the crypto industry, the Russian Central Bank is firmly opposed to the promotion of cryptocurrencies and has proposed banning the Russian people from using cryptocurrencies in the payment field.

The Russian Ministry of Finance believes that the cryptocurrency industry should be promoted, while the Governor of the Russian Central Bank said: "The development of the cryptocurrency market poses a considerable threat to financial stability." The dispute between the two sides once prompted Putin to personally mediate and publicly call on both sides to reach a consensus.

But no matter what differences there are within Russia on the widespread use of cryptocurrencies, whether it is to promote the Bitcoin system or focus on the "digital ruble" CBDC, the cryptocurrency system is currently an effective path that Russia can choose. After all, Iran once used cryptocurrencies to evade the impact of sanctions when facing US economic sanctions.

Through this Russia-Ukraine war, digital currency can be said to have truly come to the center of the world's financial stage and has begun to have a real and widespread impact on the financial world.