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After being expelled from the SWIFT system and facing thousands of international sanctions, Russia is betting on cryptocurrencies to maintain its financial transactions and challenge the economic isolation imposed by the West.
Cryptocurrencies, often associated with speculation, are being rediscovered by Russia as a tool for international trade. In a bold move, the country seeks to circumvent economic sanctions through a decentralized financial system. But will this strategy work?
The impact of economic sanctions on Russia
Since the invasion of Ukraine in 2022, Russia has faced a barrage of sanctions from countries including the United States, Japan and members of the European Union. The blocking of the SWIFT system, essential for global banking transactions, has isolated Russian banks from economy world.
To understand the gravity of this, think of SWIFT as a highway for international transfers. Without access, Russia has been restricted to alternative, often slow or unviable, routes. Although it has created its own system, SPFS, it is used mostly within the country, limiting its effectiveness for global transactions.
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The role of cryptocurrencies in the current scenario
With no traditional options, Russia has turned its attention to cryptocurrencies. Unlike fiat currencies such as the dollar or euro, they operate without intermediaries, using blockchain technology to validate transactions.
The Russian government recently passed a law allowing registered companies to use cryptocurrencies for international trade. It also regulated digital asset mining, enhancing transaction validation. This represents a significant change in posture, considering that until 2020 the use of cryptocurrencies in the country was restricted.
The challenges of using cryptocurrencies in international trade
While it may seem like a promising solution, using cryptocurrencies in global trade does come with its own set of obstacles. For starters, not all countries accept cryptocurrency payments. This means that even if Russia is willing, the other end needs to be equally open.
The Russian government has imposed limits on the use and mining of cryptocurrencies. Regions with energy shortages, for example, are banned from mining for six years. In other words, there is significant state control over a tool that should be decentralized.
Advantages and risks of the crypto path
Cryptocurrencies offer flexibility and a certain degree of opacity in transactions, which makes them attractive for circumventing sanctions. However, this opacity can also generate distrust among trading partners and attract international scrutiny.
Another risk is volatility. Cryptocurrencies are notoriously volatile, which can make it difficult to price goods and services consistently. If global acceptance doesn’t grow, Russia’s plan could become yet another dead end.
By investing in cryptocurrencies, Russia has opened a new front to counter economic sanctions. However, this strategy depends on a combination of international acceptance and the internal ability to control an essentially decentralized system.
Will the country be able to transform a speculative tool into a pillar of global trade? Time will tell. In the meantime, the world is watching closely. financial experiment unusual.
