The war that has erupted in Eastern Europe is reshaping the world financial system right before our eyes. The “tectonic” shifts we have written about on multiple occasions may come much earlier than expected, with cryptocurrencies potentially playing a massive role.
The entire global system of financial transactions is being reshaped as I am writing these words. The Visa and Mastercard international payment systems are leaving Russia, making it impossible to transfer money between countries-parties to the Eastern European conflict.
In response to Russia’s aggression, Western countries (the USA, Canada, European Union, Great Britain, Japan) hit them with new, tougher sanctions, particularly financial and economic ones. Among others, they targeted leading Russian banks, including Sberbank, VTB, Novikombank, FC Otkritie, and Sovcombank, as well as a number of state-owned companies, severely hindering their ability to attract foreign capital. Then, the EU countries and the United States agreed to cut the sanctioned Russian banks off from the international system of interbank transactions and information exchange SWIFT. The Bank of Russia assets also got frozen, which limits its use of international reserves.
In addition, EU countries pledged to restrict Russians’ access to their financial systems. Russia was partially blocked from Apple/Google Pay, Netflix and Spotify have cut the country off, and both the PayPal payment service and the eBay marketplace have suspended their Russian operations.
At the same time, we are witnessing the collapse of fiat. The Russian ruble was the first to fall, but other world currencies will soon inevitably feel the impact of not only the war itself, but also the energy crisis that has afflicted Europe and Southeast Asia in the past six months which it has exacerbated. In a situation like this, all state currencies suffer from the losses their economies are taking. And this process shows no signs of slowing down, at least not anytime soon.
But war never stops progress – rather, it spurs it on. Nowadays, it also applies to the financial system. Cryptocurrencies and tools like decentralized finance were not created yesterday – they had already taken shape and proven themselves by the time current dramatic events began.
I remember how in 2017, during the first real large-scale cryptocurrency boom, a lot of articles argued about what should happen in the world so that most people would immediately realize the advantages of crypto over conventional finance. Their authors all agreed that would take some type of global socio-economic crisis.
However, they did not account for one important factor. Back in 2018, there was no infrastructure to facilitate the mass adoption of cryptocurrencies as a means of payment. Crypto was then seen primarily as a speculative instrument, and even regular crypto wallets were flawed and extremely inconvenient in use. As a result, people who bought some coins on the wave of general excitement almost never could use them for settlements, except perhaps among each other. So the only thing left was to trade on the stock exchange and try to make money on the growing cryptocurrency prices while still withdrawing profits into fiat.
I remember well an explosion of new payment solutions in 2018-2019, which made it possible to pay with crypto in retail and for services, online and offline. And only at the end of 2019, when there were enough of those solutions on the market, we began hearing the news of retail stores and service providers adopting cryptocurrencies as a means of payment. Since then, it has just been about establishing the legislative base.
Now, we have DeFi to replace the banking system, lots of transaction services, and a variety of payment operators working with crypto, including Visa and MasterCard. So even if the fiat monetary system is to collapse, we have something to replace it with.
This process might just begin with the main culprit of the current crisis – Russia. The sanctions imposed on Russia and its business will inevitably depreciate fiat and stimulate a more active use of cryptocurrencies. Let’s take a closer look.
The main news on February 28 for the Russian financial market (and for Russians’ personal finances) was Vladimir Putin’s decree on “special economic measures” in response to the sanctions. In simple terms, it introduces strict control over capital movements.
The measures effective from March 1, 2022, include:
– A ban on crediting foreign currency to accounts and deposits in foreign banks and brokerage companies.
– A ban on transfers without opening a bank account using foreign payment systems. It means a ban on using foreign e-wallets for both crediting and debiting funds.
– A ban on Russian residents lending to foreigners in foreign currency.
– Mandatory sale of 80% of exporters’ foreign exchange earnings within three days.
The bans imposed apply to both Russian companies and citizens.
As you can see, most new restrictions are quite possible to bypass using cryptocurrency. The only problem is, crypto transactions are not provided for in any way by either accounting or legislative norms. But, as we all know, what one can or cannot do is largely determined by one’s desire to do it. That is, we should definitely expect a real flourishing of “gray” cryptocurrency intermediaries, which will become a kind of “bridge” between Russian businesses and foreign banks (or vice versa).
And if this status quo lasts long enough, it will inevitably result in the legalization of cryptocurrency settlements. The alternative is death to any kind of freedom of international trade.
The current events seem to be just the beginning, and blockchain will certainly have a major part to play in the new world order.