When the United States prohibited Americans from doing business with Russian banks, oil and gas producers, and other corporations in 2014, following the country’s invasion of Crimea, the economic impact on Russia was immediate and massive. According to economists, Western sanctions cost Russia $50 billion every year.
Since then, the worldwide market for cryptocurrencies and other digital assets has expanded dramatically. That is terrible news for sanction enforcement but excellent news for Russia.
On Tuesday, the Biden administration imposed further sanctions on Russia in response to the Ukrainian crisis, aimed at limiting Moscow’s access to international finance.
However, Russian firms are ready to mitigate some of the worst consequences by striking partnerships with anyone anywhere in the globe willing to cooperate with them, according to analysts. And, they claim, such companies may then employ digital currencies to circumvent the control points that governments rely on to stymie transaction implementation which is primarily money transfers through banks.
What’s happening in Russia?
Russian President Vladimir Putin ordered a military campaign in eastern Ukraine on Thursday, signaling the start of a conflict in Europe over Russia’s demands for NATO’s eastward expansion.
Representatives of Russia’s central bank told a Moscow newspaper in October 2020 that the new “digital ruble” would make the country less reliant on the US and better prepared to withstand sanctions. It would allow Russian firms to do transactions with any country wanting to deal in digital money outside of the international banking system.
Russia may find willing partners in other countries targeted by US sanctions, like Iran, which is creating supported digital currencies.
US Vice President Joe Biden responded by declaring that, in addition to the financial sanctions announced earlier this week, he will announce more sanctions against Russia on Thursday.
Sanctions are often regarded as the most effective means of influencing the behavior of other countries.
To impose penalties, a government compiles a list of individuals and businesses that its citizens must avoid. Anyone found interacting with a member on the list faces severe penalties.
The global banking system, however, is the essential key to any effective sanctions policy. Banks play an important role in enforcement because they observe where the money originates from and where it goes, and anti-money laundering regulations oblige them to prohibit transactions with sanctioned companies and report what they see to authorities.
Why Use Cryptocurrency?
Former federal prosecutor Michael Parker told the New York Times that Russia has plenty of time to assess the implications of these sanctions.
Banks validate their customers’ identities by adhering to Know Your Customer (KYC) standards. Cryptocurrency exchanges and platforms do not adhere to the same stringent laws when it comes to client tracking.
According to experts, Russia has a plethora of cryptocurrency-related capabilities at its disposal, according to a New York Times story.
The Role Of Central Bank Digital Currencies
The Russian government has begun the process of developing its own central bank digital money, a so-called digital ruble that it aims to use to conduct direct trade with other countries willing to accept it without first converting it to dollars. Hacking tools such as ransomware might aid Russian actors in stealing digital currency and recouping money lost due to sanctions. The central bank’s digital currency may be used to trade with nations that accept it without having to convert it to dollars.
China, Russia’s most important trading partner, has already developed its own central bank digital money.
While all bitcoin transactions are recorded on the blockchain, Russia, according to the research, has created new technologies capable of disguising the origin of such transactions.
Illegal cash has already been channeled into Russia via Hydra, a dark web marketplace. Russia possesses the technology used in Hydra and other money-laundering schemes to conceal the origin of transactions.