How Russia Can Evade Western Sanctions Using Cryptocurrency

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Russia may use cryptocurrency to mitigate the impact of international sanctions

The Russian invasion of Ukraine has attracted widespread and sweeping sanctions from the West. While the European Union imposed sanctions aimed at "Kremlin interests," the US has announced a wave of sanctions aimed at Russia's banks and state-owned enterprises, particularly transfers of money through the traditional banking system. Germany and the UK too have announced sanctions targeting the Russian economy. But there is a growing consensus that Russian entities may use cryptocurrency to mitigate the impacts of these sanctions. Many believe that Russian banks and oligarchs could put money into Bitcoin and other cryptocurrencies to evade the impact.

To pressure a country into adhering to international law and its demands, the US often resorts to imposing sanctions, a powerful diplomatic tool, as the US dollar is the world's preferred reserve currency and the most widely used medium for cross-border payments across the globe. However, US officials also believe the rise of cryptocurrency threatens their dominance and lessens the impact of these sanctions.

For sanctions to be effective, they need the banks and other financial institutions to track the flow of money, so that transactions involving entities that have been sanctioned can be blocked. However, cryptocurrency allows sanctioned entities to skirt the banking system and thus making tracking of transactions difficult.

Supporters of cryptocurrency often cite this character of the crypto industry to say that it allows an independent way of doing business. But this same feature can now allow sanctioned entities to transact business under the radar.

The key to Russia avoiding these sanctions is to