Nations like Russia and Iran may utilize cryptocurrency mining to monetize their energy resources and circumvent sanctions, the International Monetary Fund predicts in a report. Repercussions of the war in Ukraine continue to reverberate globally and cryptoization is one of the effects, the IMF says.
War and Sanctions Lead to Greater Spread of Crypto Assets, Report Says
The consequences of the ongoing military conflict in Ukraine will test the resilience of the global financial system, could affect the role of the US dollar and lead to the creation of blocks of central bank digital currencies, the IMF warns in its report on Global Financial Stability, April 2022. According to the paper, energy security priorities could jeopardize climate transition goals.
Accelerated “cryptoization,” with wider use of crypto assets in emerging markets, is another issue policymakers will have to address in the coming years. As proof of that trend, the IMF points to a spike in crypto trading volumes after the introduction of sanctions, including financial penalties, against Russia over its invasion of Ukraine. The report emphasizes:
This is happening against the backdrop of a longer-term increase in such cross-border transactions, highlighting the challenges of enforcing capital flow measures and sanctions.
Capital restrictions imposed in both countries have also contributed to the increase, the IMF notes. At the same time, “liquidity in the ruble and hryvnia trading pairs in centralized exchanges remains limited and has even declined more recently in the case of ruble,” the authors remark. In their opinion, this is making large transfers through crypto exchanges impractical.
However, the IMF admits that the crypto ecosystem allows users to evade certain restrictive measures such as stricter identity verification requirements. Due to the freezing of crypto assets and the blocking of new ruble deposits, part of the transactions could have moved to less transparent platforms or non-compliant crypto service providers, recognizes the international organization.
IMF Sees Risks to Financial Integrity in Cryptocurrency Mining
The IMF experts believe that countries like the Russian Federation and the Islamic Republic of Iran could use crypto mining to circumvent sanctions. They elaborate that the energy-intensive minting of digital currencies like bitcoin can allow these nations to monetize their energy resources outside the traditional financial system. Revenues can be generated via transaction fees as well.
“At this stage, the share of mining in countries under sanctions and the overall size of mining revenues suggest that the magnitude of these flows is relatively contained, although risks to financial integrity remain,” the report concludes. IMF. According to estimates cited in the report, Russian miners could have captured almost 11% of bitcoin mining revenue last year, which averaged around $1.4 billion per month, while mining farms Iranian mining companies could have received about 3%.
Officials in Moscow have been turning attention to crypto assets as a tool to restore Russia’s access to global markets, receive payments for energy exports, finance international trade, and potentially diversify currency reserves. Government institutions support the legalization of crypto mining as an economic activity and a new bill “On Digital Currency” was recently revised to add provisions regulating the industry.
