Interest money

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

A weekend ban preventing Russia from using SWIFT, the world’s largest financial messaging network, appeared to have near-immediate and far-reaching economic consequences this week.

An ongoing series of sanctions imposed by the United States and other countries in recent days has prevented Russia’s central bank from using dollars, euros and other foreign currencies held in reserve to stabilize the ruble during a downturn. economic. On Saturday, the United States and its key allies took what many consider the toughest sanction yet – blocking many Russian banks from SWIFT.

The setback of economic sanctions sent Russian stocks crashing and losing the ruble 30% of its value against the US dollar on Monday. The Central Bank of Russia was able to help the value of the ruble recover somewhat, but it was still down 20% at the end of the trading day. At the same time, the central bank more than doubled interest rates to 20% and the Moscow stock exchange was closed. (It will remain closed today.).

Even Switzerland, which has a long history of neutrality, announced on Monday that it would impose financial sanctions on Russian and other leaders, as well as certain companies.

“We have really entered some rough and murky waters,” said Aseem Prakash, co-founder and Global Futurist at the Center for Innovating the Future, a Toronto-based consulting firm. “What seemed like a safe bet is now fraught with risk. There are already so many moving parts. At the same time, the West is not done with sanctions. What happens next will mainly depend on what happens on the ground in Ukraine.”

On Monday, the US Treasury Department announced new sanctions to tie up all assets of the Russian Central Bank in the United States or owned by Americans. The Biden administration estimated the move could freeze “hundreds of billions of dollars” in Russian funding.

“Already the Russian central bank 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.

Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in targeting Russia’s central bank, the White House has said.

EU President Ursula von der Leyen said the multinational organization planned to propose “massive and targeted sanctions” to European leaders for approval in a bid to undermine Russia’s ability to modernise. “We will target strategic sectors of the Russian economy by blocking their access to technologies and markets that are essential for Russia,” she said.

Economic sanctions will increase

As new economic sanctions hit — including a block on imports of high-tech goods — Russia is likely to maneuver to redirect financial transactions to other messaging networks; these options would be much smaller and less mature than SWIFT. One possible tactic would be to convert rubles into cryptocurrency and use blockchain networks, which have less regulatory scrutiny and are often open to anyone who wants to use them.

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

“Russia is also experimenting with launching its own central bank digital currency that it could use with countries that are willing to accept it,” Doshi said.

On Sunday, Ukrainian Digital Transformation Minister Mykailo Federov asked all major crypto exchanges to block Russian user addresses. “It is crucial not only to freeze addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” he added. Federov tweeted.

Sanctioned entities using cryptocurrency networks can be blocked via a simple address blacklist, which will prevent them from transferring their crypto funds out of cryptocurrency networks to accounts in centralized services and financial institutions ( for example, crypto exchanges or banks), said Avivah Litan, Gartner vice president and distinguished analyst.

“Contrary to popular tradition, cryptocurrencies are not a safe haven for anonymous offenders. In fact, thanks to intelligent blockchain analysis, it is easier to follow money trails on blockchains than on legacy payment networks, whatever roundabout route they may take,” Litan said.

Major cryptocurrencies, such as Bitcoin and Ethereum, saw their value skyrocket after Russian banks were removed from the SWIFT system and Ukraine’s monetary system took a nose dive.

After a massive Bitcoin sell-off last week, the price jumped more than 9% to reach $41,300. Price spike speculations centered on assumptions that traders were reacting to the ongoing Russian-Ukrainian crisis.

Once the stronghold of high-risk investors, the adoption of blockchain networks and the digital currencies they enable are growing in popularity as transactions become more secure and financial value soars, according to research firm Gartner.

Cryptocurrencies account for just under 11% of the $19.4 trillion in circulation worldwide, but the value of digital money is growing rapidly. Big companies, investors and financial institutions are buying more and more.

Coca-Cola, Stella Artois, Visa and many other consumer products companies already have non-fungible digital tokens (NFTs) and are leveraging their brand’s intangible value for marketing and generating new revenue streams, said Litan.

And the amount of stablecoins, or cash-backed cryptocurrencies, has more than quintupled from $20 billion to $110 billion in the past year because their value is stable and supports transfers. more transparent and efficient than traditional payment networks.

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

As for Russia, it has been hedging its bets against the US dollar for some time now, Prakash said. “In 2018, he reduced holdings of US Treasuries by 84%. He also announced that he was completely removing US dollars from his sovereign wealth fund,” he said. So while Russia can turn to its alternative to SWIFT, called SPFS (System for Transfer of Financial Messages), the current reach of SPFS is incredibly 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 transfers, Prakash said. This compares to 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 a currency fluctuates or becomes volatile, the less attractive it becomes, both at home and abroad.

Prakash said that even if the central bank decides to print rubles, it will not allow a conversion to bitcoins “because it will break any confidence in the currency especially since the central bank has lost the most important tool for stabilize the currency”.

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

Russian invasion disrupts major IT services

Everest Group partner Anurag Srivistava said Russia’s assault on Ukraine also disrupted key IT services, which have grown in recent years.

Ukraine, he said, is a key global delivery location for IT and engineering R&D services, “leading to widespread uncertainty and significant concern for the many companies operating there.

“Companies such as Wix, Vistaprint, Ciklum and Cimpress had already started to relocate their staff from eastern Ukraine to relatively safer parts of the country such as Lviv, Ternopil and Ivano-Frankivsk, with the aim of pursuing uninterrupted business processes and to protect employees. way,” Srivistava wrote in a market note. “Some are even moving to other countries, such as Poland, Turkey and Israel.”

The United States already has implemented high-tech sanctions against Russia which include widespread restrictions on sensitive technology produced in foreign countries using US-origin software, technology or equipment. The restrictions affect semiconductors, telecommunications, encryption security, lasers, sensors, navigation, avionics and maritime technologies and are designed to prevent Russia from gaining access to advanced technologies.

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

Social media acts against misinformation

Two social media campaigns aimed at spreading misinformation about the Russian assault on Ukraine were identified and deactivated on Facebook over the weekend, according to social network parent company Meta.

“We have removed this operation, we have blocked their domains from being shared on our platform, and we have shared information about the operations with other technology platforms with researchers and with governments,” said David Agranovich. , Director of Threat Disruption for Meta, said in a press release.

A campaign successfully bypassed Meta’s security team and created 40 suspected artificially generated accounts, Agranovich said.

The fake entities operated websites posing as independent news sites and created fake personas on numerous social media platforms, including Facebook, Instagram, Twitter, YouTube, Telegram, Odnoklassniki and VK, Meta said. The campaign also targeted Ukrainian military and public figures.

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

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