The act of the Russian army’s invasion to Ukraine on 24 February 2022 could have more outcomes that it is obvious at the first glance. Let’s look at it from a different angle.
Approach to crypto currencies
It is interesting to note that both states have chosen a different path in their approach to cryptocurrencies. Russia began testing the digital ruble, its central bank digital currency (CBDC), in mid-February this year and has seen success in transfers among citizens. It is also generally known that Russia is quite dismissive of cryptocurrencies and sees them as a major risk.
Ukraine, on the other hand, is more welcoming to cryptocurrencies. Around the same time, a law on virtual assets was adopted which legalises cryptocurrencies. Ukraine has thus started to process more transactions in cryptocurrencies than in hryvnia. Major Ukrainian TASCOMBANK also entered into a government-backed pilot test phase of a digital hryvnia with fintech company Bitt in December 2021, with Bitt previously responsible for CBDC implementations in the Caribbean and Nigeria. Ukraine is also no. 4 in the world in cryptocurrency adoption.
CBDC in Russia
The digital ruble would enhance Russia’s ability to maintain control over its own population, providing Russian authorities with detailed personal financial records to enable more effective targeting of Russia’s political opponents, among other targeted groups and enable account settlement with other threat actors with no regards for sanctions. Russia’s known history of money laundering, combined with increasing sanctions against Russia, further reinforces this notion.
The fact that Russia was cut off from the international transaction system SWIFT as well as Russians from bank services together with the sharply falling Russian currency, could lead to Russia having to speed up with its CBDC implementation and make a transition to the central bank digital currency instead. It is also worth noting that China has already done so with its digital yuan. That would solve several problems for Russia at once, giving the government much greater control over its citizens, solving the bankruptcy of its national currency and enabling it to bypass at least partially sanctions on its transactions.
With any situation, it is always necessary to look at it from all sides. The less visible things cannot be ignored. While Russia’s current aggressive military actions in Ukraine are extremely alarming for governments around the world, it is Russia’s development and future utilization of the digital ruble that should receive additional long-term attention by senior government officials. Frankly – rarely are such conflicts not about money.