After the SWIFT ban, can Russia find other avenues for its money – including crypto?

Weekend ban prevent Russia from using SWIFTThe world’s largest financial messaging network, appeared to have had near-immediate and far-reaching economic consequences this week.

A flurry of sanctions from the US and other countries in recent days has prevented Russia’s central bank from using the dollars, euros and other foreign currencies held in reserve to stabilize the ruble during recessions. economy. On Saturday, the US and its major allies imposed what many consider to be the harshest sanctions to date – blocking many Russian banks from SWIFT.

Wide-ranging economic sanctions sent Russian stocks plunging and the ruble depreciating 30% of its value against the US dollar on Monday. The Central Bank of Russia was able to help the ruble’s value recover somewhat, but it was still down 20% by the end of the trading day. At the same time, the central bank more than doubled interest rates to 20%, and the Moscow stock market was closed. (It will close today.).

Even Switzerland, which has a long history of neutrality, on Monday announced it would impose financial sanctions on Russia’s leaders and others, as well as some of the most companies. determined.

Aseem Prakash, co-founder and Global Futurist at the Center for Future Innovation, a Toronto-based consulting firm. “What seemed like a safe bet is now fraught with risk. There are already too many moving parts. At the same time, the West has not implemented sanctions. What comes next will depend on what comes next. taking place on the ground in Ukraine.”

On Monday, the US Treasury Department announced new sanctions to immobilize any assets of the Central Bank of Russia in the United States or held by Americans. The Biden administration estimates the move could freeze “hundreds of billions of dollars” in Russian funding.

“The central bank of Russia has announced that it cannot intervene and stabilize the ruble because it no longer has access to the euro or the US dollar,” Prakash said.

The White House said Germany, France, Britain, Italy, Japan, the European Union and others would join the US in targeting the Russian Central Bank.

EU President Ursula von der Leyen said the multinational organization plans to put in place “large and targeted sanctions” for European leaders to approve with the aim of damaging existing capacity. modernization of Russia. “We will target strategic sectors of the Russian economy by blocking their access to technologies and markets important to Russia,” she said.

Increased economic sanctions

As more economic sanctions come in – including a ban on the import of high-tech products – Russia may move to reroute financial transactions to other messaging networks; those options will be a lot smaller and less mature than SWIFT. One possible tactic would be to convert rubles to crypto and use a blockchain network, which has less regulatory oversight and is generally open to anyone who wants to use them.

Ronak Doshi, a partner at research firm Everest Group, said that emerging methods such as cryptocurrencies and other digital assets such as privacy coins will be explored by Russia to try and avoid any conversion. to US dollars.

“Russia is also testing the launch of its own central bank digital currency that it can use with countries willing to accept it,” Doshi said.

On Sunday, Ukraine’s minister of digital transformation, Mykailo Federov, ordered all major cryptocurrency exchanges to block addresses of Russian users. “It is important to freeze not only the addresses associated with Russian and Belarusian politicians, but also to sabotage ordinary users.” Federov tweeted.

Avivah Litan, Deputy Gartner, said that sanctioned entities using the crypto network can be blocked through a simple address that refuses to list, which would prevent them from moving their cryptos out of the country. network of cryptocurrencies into accounts at centralized financial services and institutions (e.g. crypto exchanges or banks), said Avivah Litan, Vice President and Distinguished Analyst.

“Contrary to popular myth, cryptocurrencies are not a haven for anonymous lawbreakers. In fact, due to intelligent blockchain analysis, it is easier to track the path of money on the blockchain than it is on legacy payment networks, however, they can follow a vascular route.

Leading cryptocurrencies, such as Bitcoin and Ethereum, have seen their values ​​skyrocket after Russian banks were removed from the SWIFT system and Ukraine’s currency system became active. .

After a massive Bitcoin sell-off last week, price increased by more than 9% to reach $41,300. Speculation on the price increase focuses on assumptions that traders are responding to the ongoing Russo-Ukrainian crisis.

Once a city of high-risk investors, the adoption blockchain network and the digital currencies they enable are gaining mainstream support as transactions become safer and financial value explodes, according to research firm Gartner.

Cryptocurrencies account for just under 11% of the $19.4 trillion in global circulation, but digital currencies are rapidly increasing in value. Corporations, investors and mainstream financial institutions are increasingly buying.

Litan said Coca-Cola, Stella Artois, Visa and many other consumer product companies already have digital tokens (NFTs) and are leveraging the intangible value of their brands for marketing and promotion. new revenue streams.

And the number of stablecoins, or Cryptocurrencies backed by cashmore than fivefold from $20 billion to $110 billion in the past year as they are stable in value and support a more transparent and efficient transfer of value than legacy payment networks.

Major legacy payment networks, including SWIFT, now support cryptocurrencies to avoid disruption by newer crypto payment networks.

As for Russia, they have been hedging their bets against the US dollar for a while, Prakash said. “In 2018, it reduced its holdings of US Treasuries by 84%. It also announced that it has completely removed US dollars from its sovereign wealth fund,” he said. So while Russia could switch to an alternative to SWIFT, known as SPFS (Financial Message Transfer System), the current scope of SPFS is extremely limited.

At the end of 2020, the number of foreign banks connected to it was only 23, and the system is mainly used for domestic money transfers, Prakash said. That compares with the more than 11,000 financial institutions in 209 countries that use SWIFT’s messaging system.

One of the most important pillars of a stable economy is the value of its currency. The more volatile or volatile a currency becomes, the less attractive it becomes, at home and abroad.

Prakash said that even if the central bank decides to print the ruble, it will not allow conversion to bitcoin “, because it will lose confidence in the currency, especially since the central bank has lost its job. the most important tool for currency stability.

“However, it is possible to buy gold and rethink how the currency is driven,” Prakash said.

Russia Invasion Disrupts Critical IT Services

Anurag Srivistava, a partner at Everest Group, said the Russian attack on Ukraine has also disrupted critical IT services, which have grown over the past few years.

Ukraine is an important global supplier for IT and engineering R&D services, he said, “which brings widespread uncertainty and significant concern to many companies operating there. .

“Companies such as Wix, Vistaprint, Ciklum and Cimpress have already begun to move their employees from eastern Ukraine to relatively safer parts of the country such as Lviv, Ternopil and Ivano-Frankivsk, in an effort to continue their efforts. uninterrupted business processes and keeping employees unharmed,” Srivistava wrote in a market note. “Some are even moving to other countries, like Poland, Turkey and Israel.”

America has implement high-tech sanctions against Russia includes broad restrictions on sensitive technologies manufactured abroad using U.S.-origin software, technology or equipment. The restrictions affect semiconductors, telecommunications, cryptographic security, lasers, sensors, navigation, avionics, and marine technology and are designed to prevent access to advanced technology by Russia.

Prakash noted that US sanctions on high-tech items are not limited to products made by US companies. The sanctions also prohibit any product made anywhere using any type of American technology.

Social media against misinformation

Two social media campaigns aimed at spreading misinformation about Russia’s attack on Ukraine were identified and disabled on Facebook over the weekend, according to Meta, the social network’s parent company.

“We’ve taken this activity down, we’ve blocked their domains from being shared on our platform, and we’ve shared information about other technology platforms’ activity with researchers. research and with governments,” said David Agranovich, director of threat disruption at Meta, said in a statement.

Agranovich said one campaign bypassed Meta’s security team and created 40 accounts that were suspected to have been artificially created.

Meta said that the fake entities operated websites masquerading as independent news sites and created fake characters across multiple social media platforms including Facebook, Instagram, Twitter, YouTube, Telegram , Odnoklassniki and VK. The operation also targeted the Ukrainian military and public figures.

“We have been in contact with the Ukrainian government. At their request, we restricted access to a number of accounts in Ukraine, including those belonging to several Russian state media organizations,” Agranovich said. “We are also looking at other government requests to restrict Russian state-controlled media.”

Copyright © 2022 IDG Communications, Inc. After the SWIFT ban, can Russia find other avenues for its money – including crypto?

Fry Electronics Team

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