Cryptocurrency purchases in rubles are at a record high following Russia’s invasion of Ukraine, raising questions about whether the likes of bitcoin can help Moscow get around sanctions. 

Why is crypto attracting Russians? 

The United States and its Western allies have sought to cripple Russia’s banking sector and currency with a barrage of sanctions. 

They include cutting selected Russian banks from the SWIFT messaging system, rendering them isolated from the rest of the world. 

SWIFT’s system allows banks to communicate rapidly and securely about transactions. Cutting Russia off is aimed at preventing it from trading with most of the world. 

Western measures that prohibit transactions with Russia’s central bank have also helped plunge the country’s economy into turmoil. 

The ruble is down 27% against the dollar since the start of the year and is trading at more than 100 rubles per U.S. unit, its weakest level on record. 

Russians are consequently flocking to cryptocurrencies that operate on a decentralized network and therefore are not directly affected by sanctions.  

Crypto data-provider Kaiko has reported record purchasing volumes of bitcoin in rubles since last week’s invasion.  

Another type of digital currency to have benefitted hugely from Russia’s assault on its neighbor is tether, a “stablecoin” that is seen as less volatile than cryptocurrencies since it is pegged to the dollar. 

“What we saw … looking at tether (is) the average trade size has increased” in Russia, Clara Medalie, head of research at Kaiko, told AFP. 

“However, it’s still relatively low, which shows an interest split between institutional and retail buyers.” 

Is crypto a long-term solution against sanctions? 

Governments can, if they wish, order shopping platforms to place restrictions on purchases made using cryptocurrencies as a way of blocking attempts to get around sanctions. 

Ukraine’s deputy prime minister Mykhailo Fedorov, who is also minister of the country’s digital transformation, demanded via Twitter that crypto platforms block Russian accounts, a request reportedly being considered by U.S. authorities. 

Analysis group Chainalysis said in a statement that it was “optimistic that the cryptocurrency industry can counter attempts by Russian actors to evade sanctions.” 

It pointed out that blockchains, or the registers of transactions made by digital currencies, allow Western governments to identify violations.  

At the same time, North Korea and Iran have succeeded in getting around sanctions thanks to cryptocurrencies. 

North Korea has earned billions of dollars from cyberattacks, while Iran has used low-cost energy to mine bitcoin, according to Caroline Malcolm of Chainalysis. 

However, using crypto to sell key Russian export commodities, such as wheat, oil and gas, is unlikely because, one veteran broker said, trading volumes of bitcoin and its rivals remain insufficient to support large-scale trades. 

Crypto reactions to invasion? 

Bitcoin and other cryptocurrency prices have jumped since the invasion but not simply because of Russian investment. 

The Ukranian government since Saturday has received $17.1 million worth of crypto following a call for donations, according to analysts Elliptic.  

“We didn’t get to choose the time or manner of our little industry becoming geopolitically critical overnight, but it is upon us,” tweeted Nic Carter, partner at crypto fund Castle Island. 

But Medalie cautioned that the “ruble is not a large cryptomarket. There is not a lot of influence on the rest of the market,” she said. 

 
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From Afghanistan to Cuba, more than 20 countries around the world are under U.S. economic, financial and political sanctions that, according to some experts, are unprecedented in severity and scope. 

The latest penalties target Russia. 

As Russian troops crossed Ukrainian borders, U.S. President Joe Biden made it clear that he will not send U.S. forces to deter Russia’s invasion militarily. Instead, he authorized a series of economic and financial sanctions. 

“The scale of these sanctions are truly unprecedented,” Robert Person, a professor of international affairs at West Point, told VOA while speaking in a private capacity. 

This week Russia has been scrambling to prevent a financial meltdown after sanctions cut some banks out of a critical global financial system and froze the assets of Russia’s central banks that are held overseas. Western countries also set up a task force to seize assets of Russian companies and politically influential businessmen. 

“The cost to Russia will be immediate and profound — to its financial system, to its economy, to its technology base, and to its strategic position in the world,” Daleep Singh, deputy national security adviser for international economics at the White House, told reporters on February 24. 

“We are settling in for a long-term political-economic conflict with Russia, what some have called ‘containment 2.0.’ It’s worth remembering that it took 74 years for the economic flaws in the Soviet system to finally bring about its collapse,” said Person. “Patience in this long struggle will be necessary.” 

Presidential, congressional power 

Under the International Emergency Economic Powers Act of 1977 (IEEPA), the U.S. president can impose sanctions through executive orders. 

Sanctions do not require congressional approval, but Congress also can initiate sanctions through legislation. 

Sanctions are used when diplomacy fails and when war is not preferred as an option, experts say. 

“The exercise of powers granted to the president under IEEPA — the underlying legal authority for most sanctions programs — requires a declaration of national emergency with respect to a threat to the foreign policy, national security, or the economy of the United States that emanates largely from abroad,” Brian O’Toole and Samantha Sultoon wrote in a piece for the Atlantic Council.  

Most policies regarding sanctions are proposed by U.S. government agencies, such as the State Department, and discussed before being recommended to the president for approval. 

Various applications 

While many sanctions are economic in nature, some sanctions are also political and aim to address a range of issues such as nonproliferation of arms, human rights violations, terrorism concerns and trade disputes. 

As of February 2022, there are 23 countries under various U.S. sanctions. 

There are also sanctions related to counter-narcotics trafficking, counterterrorism, cyber operations, foreign interference in U.S. elections, and human rights violations, which can be applied against any country, individual or entity. 

Under IEEPA, there is no limit on the number of countries and foreign entities against which sanctions can be applied. 

“The limit is really policy-defined, in (terms of) how many sanctions regimes the U.S. government believes it needs (in order) to deal with whatever challenges it is facing,” Richard Nephew, a sanctions expert and Columbia University senior research scholar, told VOA. 

Execution 

Russia’s central bank has billions of dollars in foreign currencies held in Western countries which are now frozen. Earlier this year, the U.S. froze some $7 billion of Afghanistan’s assets at the New York Reserve.

When sanctions are applied it becomes “illegal for U.S. persons — and foreign persons can face sanctions of their own — if they do business with sanctioned entities and individuals in ways the U.S. government considers material,” Nephew said. 

The U.S. cannot force other countries to comply with sanctions it imposes but seeks their cooperation to do so. 

Sanctions can deprive individuals and entities from a host of financial transactions such as credit loans, mortgage payments and funds transfers unless there are specific exemptions offered within a given jurisdiction. 

Under the latest sanctions on Russia, U.S. and European countries have also isolated selected Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international bank-to-bank transfer system. 

“This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” the European Union said in a statement on February 26. 

Russian officials have shrugged off the sanctions as trivial and something that will not cause significant harms, but independent observers say it’s too early to say how deep and extensive the impact of the sanctions will be on the Russian economy. 

Effectiveness 

Sanctions can be modified, eased or removed at any time by the U.S. government. 

The Islamic Republic of Iran, the Republic of Cuba, and the Democratic People’s Republic of Korea (North Korea) have been under U.S. sanctions for several decades. 

The effectiveness of sanctions is passionately debated as both proponents and opponents point to specific cases. 

In a June 2019 Foreign Affairs article, a majority of experts quoted said sanctions were causing more harm than good. 

“Sanctions impose costs on both parties: the sender and the target,” said Person of West Point. “There’s also a long-term concern that aggressive sanctions like these will accelerate a global transition away from the American-led international financial architecture and use of the dollar as the dominant currency of exchange and reserve.” 

One thing that is clear is the palpable impact of sanctions — even if intended to target only the broader economic standing of a country — on ordinary people. 

Speaking on the effectiveness of the new sanctions imposed against Russia, White House official Singh said, “these impacts over time will translate into higher inflation, higher interest rates, lower purchasing power, lower investment, lower productive capacity, lower growth, and lower living standards in Russia.” 

“To be clear: This is not the outcome we wanted. It’s both a tragedy for the people of Ukraine and a very raw deal for the Russian people. But Putin’s war of choice has required that we do what we said and to ensure this (invasion) will be a strategic failure.” 
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Global supply chains, already hit hard by the pandemic, are facing further disruption and cost inflation as airspace closures after Russia’s invasion of Ukraine affect the air freight industry.

Transport between Europe and north Asian destinations like Japan, South Korea and China has become particularly problematic due to reciprocal airspace bans that bar European carriers from flying over Siberia and Russia airlines from flying to Europe.

Airlines responsible for moving around 20% of the world’s air cargo are affected by those bans, Frederic Horst, managing director of Cargo Facts Consulting, told Reuters on Tuesday.

Germany’s Lufthansa LHAG.DE, Air France KLM AIRF.PA, Finnair FIA1S.HE and Virgin Atlantic have already canceled north Asian cargo flights over airspace issues, though major Asian carriers like Korean Air Lines 003490.KS and Japan’s ANA Holdings 9202.T are still using Russian airspace, as are Middle Eastern airlines.

Pure cargo carriers like Russia’s AirBridgeCargo Airlines and Luxembourg’s Cargolux are also subject to the airspace bans, in a move that could send air freight rates — already elevated due to a lack of passenger capacity during the pandemic — soaring further.

In December, air cargo rates were 150% above 2019 levels, according to the International Air Transport Association (IATA), adding to inflation affecting industries and economies around the world.

Sanctions imposed on Russia in the wake of its invasion of Ukraine are expected to further disrupt global supply chains.

Russia’s AirBridgeCargo alone moves just under 4% of global international air cargo, with most of that between Europe and Asia, Horst said.

“All up you could be looking at perhaps a quarter of air cargo between Asia and Europe needing to find alternate means of transportation,” Horst said.

“Yields are high enough that flying a longer route via Southeast Asia, South Asia or the Middle East is an option, but it will still pull capacity out of the market.”

Demand for air cargo last year was 6.9% above 2019’s pre-pandemic levels, according to IATA, as e-commerce surged during the pandemic and shipping container shortages and port bottlenecks led to more products being flown by air. In December, air cargo rates were 150% above 2019 levels, IATA said.

Asia-North America cargo routes are expected to be less affected than European routes, analysts say, because many carriers already use Anchorage, Alaska as a cargo hub and stopover point.

Japanese automakers Toyota Motor Corp 7203.T and Nissan Motor Co 7201.T said on Tuesday they were keeping an eye on any disruption to supply chains as a result of what Russia calls its “special operation” in Ukraine.

U.S.-based United Parcel Service Inc UPS.N and FedEx Corp FDX.X, two of the world’s largest logistics companies, have halted deliveries to Russia.
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Єврокомісар з питань енергетики Кадрі Сімсон 28 лютого у Брюсселі заявила, що надзвичайна синхронізація енергосистеми України з європейською ENTSO-E може бути проведена за кілька тижнів
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