How the Russia-Ukraine conflict has highlighted the impact of cryptocurrencies
Enabling instant monetary support for Ukraine worldwide
Funds available quickly
After a Ukrainian government officialtweeted that the country would now accept international aid via cryptocurrency,more than US$100 million was reportedly raisedthis way. Two funds were initially set up: one for humanitarian and the other for military purposes. However, as the violence escalated the funds were merged and directed entirely toward supporting the Ukrainian military, where there were used to purchasebody armor, night vision goggles, helmets, medicine and food for frontline fighters.
The government has stated that although the amount received in cryptocurrency is modest with respect to the total funds granted from international agencies, it was able to receive these funds much more quickly because of the absence of intermediaries.
Bank transfers can, indeed, take several days to arrive in the Ukrainian government’s accounts. The cryptocurrency was depositedwithin a few minutes.
This demonstrates the undeniable usefulness of cryptocurrency — the way it presently operates and is regulated — insupporting, in particular, the financial and economic systems of countries in distress.
Using cryptocurrency to evade international sanctions
However, while digital warfare can benefit some people in human and military terms, particularly by overcoming the slowness of conventional financial systems, it can make it possible for others to circumvent the international sanctions that have been imposed on them. In this regard, it should be noted that according to some sources, cryptocurrency is also serving as asafe haven for many ordinary Russian citizens who are trying to hang on to their savingsinside a banking system that has numerous restrictions and vulnerabilities, as the value of the ruble collapses.
Economic sanctions against Russia are not new.A number have been put in placesince the country annexed Crimea in 2014. The current Russian invasion of Ukraine has resulted innew financial and economic sanctions that penalize Russian organizations and individuals, including oligarchs. As a result, the value of the Russian ruble is falling to the point where severalRussian subsidiaries of European banks are reportedly on the verge of bankruptcy.
However, here again, proceeding through the lightly regulated cryptocurrency world could help Russian organizations, governments and oligarchsevade sanctions and carry on their financial activities. Since the start of the war,the conversion of Russian rubles into cryptocurrency has literally exploded.
Cryptocurrency leaves traces
But is it really an effective and definitive way to dodge sanctions? Probably not, especially when it comes to the very large sums held by Russian oligarchs and large organizations. It is very unlikely thatthese sums could be entirely absorbedby the different types of cryptocurrency in circulation at the moment.
Moreover, the usefulness of cryptocurrency for these types of transactions is temporary. The sums used to obtain cryptocurrencyactually become traceable — and thus, subject to sanctions — as soon as they land in traditional bank accounts.Cryptocurrency is also becoming less and less untraceablethanks tothe increasing expertise of law enforcement.
The war will accelerate regulation
From this perspective, the current digital war between Ukraine and Russia will likely serve as a catalyst to accelerate the regulatory takeover of the anarchic cryptocurrency world. It will then be up to each country to find mechanisms that will allow them to regulate virtual currencies — inhopes that the whole process will acquire a certain cohesion, internationally.
In this sense, it appears to be essential for legislators in different countries to consider creating a balanced framework. The goal must be minimizing the possibilities of using the cryptocurrency universe as an illegal means of evasion without removing the efficiency that cryptocurrency offers — particularly the speed it provides for processing transactions. Striking this balance will not be easy.
This article bySimon Dermarkar, Associate professor,HEC MontréalandMouna Hazgui, Associate professor, Financial Accounting and IFRS,HEC Montréal, is republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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