- The IMF warns that Russia could use cryptocurrencies to circumvent US sanctions.
- The fallout from Russia’s ongoing military conflict in Ukraine will test the resilience of the global financial system.
- Cryptocurrency mining makes it possible to monetize Russia’s natural resources.
The International Monetary Fund (IMF) has published its latest report in which it admits that sanctioned countries like Russia could turn to cryptocurrencies and significantly boost crypto mining to evade any kind of economic sanction.
It is worth keeping in mind that, from the point of view of International Law,Sanctions are economic, diplomatic or military measures that a State takes unilaterally to pressure another to comply with its obligations.
Therefore, the IMF warns that cryptocurrencies could reduce the effectiveness of sanctions to achieve their ultimate goal: to make the other comply with their obligations.
Difficult times call for desperate measures
The current political, economic and social context is complex. We quickly went from having the world on pause as a result of a pandemic to being on the brink of World War III. All this without even recovering from the consequences of the first event.
Thus, the IMF has published its Global Financial Stability Report where it has warned that the consequences of the ongoing military conflict in Ukraine will test the resilience of the global financial system.
An indicator that approximates how the world economy is doing is inflation, particularly in the United States and, as many will know, the annual variation rate of the Consumer Price Index (CPI) in the United States in March was 8, 5%.
Based on this and other factors, the IMF has lowered its global growth outlook for 2022. And if we believed that war and inflation only have repercussions on the economy, we would be wrong. The IMF assured that energy security priorities can also put climate transition goals at risk.
The role of cryptocurrencies
Russia is currently the country with the highest number of sanctions in the world, above North Korea, with more than 400 different measures against it. Basically, the country is isolated from the traditional financial system.
According to the IMF, Russia could have a wide variety of tools to move money without using the traditional financial system. For example, you could make use of decentralized crypto exchanges (DEX) that do not have to comply with regulations, unlike centralized crypto exchanges (CEX).
But contrary to popular belief, most cryptocurrencies are pseudonymous, not anonymous. However, the use of DEXs in conjunction with cryptocurrencies such as Monero (XMR) improve privacy by making it difficult or impossible to track transactions.
That is how The IMF warns that the accelerated adoption of cryptocurrencies is an issue that policymakers need to address in the coming years. Essentially because they have seen crypto trading volumes rise after the introduction of sanctions on Russia.
However, cryptocurrency trading on DEXs is not the only tool to evade sanctions. The IMF explains that Cryptocurrency mining may also be a means through which Russia and Iran could circumvent sanctions.
According to the report, the energy-intensive minting of digital currencies like bitcoin can allow these nations to monetize their energy resources outside of the traditional financial system. Additionally, revenue can be generated through transaction fees.
In fact, according to IMF estimates, miners in Russia could have captured roughly 11% of Bitcoin mining revenue last year, which averaged $1.4 billion US dollars per month.
Russian crypto miners are already being sanctioned
The warnings of the IMF will not remain in the air. On April 20, the Treasury’s Office of Foreign Assets Control (OFAC), added Russia-based miner BitRiver, as well as its 10 subsidiaries, to the list of Specially Designated Nationals.
“ANDThe Treasury is also cracking down on companies in Russia’s virtual currency mining industry. By operating large server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources. Russia has a comparative advantage in crypto mining due to energy resources and a cold climate. However, mining companies rely on imported IT equipment and fiduciary payments, making them vulnerable to sanctions.“, He said release.
However, OFAC did not list any Bitcoin or other crypto addresses that are associated with the sanctioned companies. Meanwhile, on Friday, April 15, the Russian Ministry of Finance modified the digital currency bill to include provisions on crypto mining.
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