The latest report on global financial stability of the International Monetary Fund (IMF), published this Tuesday, April 19, warned that bitcoin and other cryptocurrencies are being used as a mechanism to evade the sanctions imposed on Russia, after the deepening of the conflict with Ukraine.
The war in Ukraine, the report states, has highlighted Some of the challenges that regulators face in applying sanctionses and capital flow management measures. For example, implementing those controls requires intermediaries to verify the identities of the transacting parties. However, the use of cryptocurrencies could allow users to circumvent such requirements through various means.
One of them is the use of exchanges and other cryptocurrency providers that do not comply with the regulations of the regulators. Poor implementation of procedures is also involved. due diligence, by cryptocurrency providers. Finally, the use of technologies and platforms that increase the anonymity of transactions, such as mixers or mixers, decentralized exchanges and coins privacy orientedhinders the identification of those who carry out a certain exchangesays the report.
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“Regulators in the United States and the United Kingdom, among others, have urged companies in their jurisdictions, including the crypto asset sector, to increase vigilance regarding potential Russian sanctions evasion attempts,” the report states. . In this sense, companies can be expected to become more strict when asking for KYC from customers, thus reducing privacy.
Risks inherent to cryptocurrencies, according to the IMF
Cryptocurrency trading volumes versus other emerging market currencies have risen markedly since the start of the pandemic, the IMF notes.
Over time, sanctioned countries could also allocate more resources to evade sanctions through bitcoin mining, emphasize the report. This could allow countries to monetize energy resources, some of which cannot be exported due to sanctions, the regulator maintains. In this sense, the Russian Ministry of Economy, shortly before the start of the conflict, had been in favor of allowing bitcoin mining in regions of that country where there is a surplus of electrical energy, as reported in this medium.
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“Monetization happens directly on blockchains and outside of the financial system where sanctions are implemented. Miners can also earn revenue directly from users who pay mining transaction fees (which in this case could be sanctioned governments),” the report states.
At this point, the IMF recognizes that the participation of mining in countries under sanctions and the total size of mining revenues suggests “that the magnitude of such flows is relatively contained, although risks to financial integrity remain. This does not prevent initiatives to increase the number of miners in regions where low-cost electricity abounds.
The average monthly income of all bitcoin miners last year was around $1.4 billion. Russian miners could have captured about 11% of that total and Iranian miners 3%, roughly $196 million.
Although the IMF recognizes the growing adoption of bitcoin in emerging markets, this organization continues to reject that El Salvador has granted it the status of legal tender, as reported by CriptoNoticias. For this financial organization, the fact that bitcoin is now a legal currency in El Salvador “involves serious risks to financial and market integrity, financial stability and consumer protection.”