Countries such as Russia and Iran may use cryptocurrency mining to monetize their energy resources and circumvent sanctions, the International Monetary Fund predicted in a report. The International Monetary Fund says that the effects of the war in Ukraine continue to have ramifications across the globe, and crypto is one of the effects.
War, Sanctions Lead to Wider Spread of Crypto Assets, Report Shows
The IMF warns in its Global Financial Stability Report that the consequences of the ongoing military conflict in Ukraine will test the resilience of the global financial system, potentially impacting the role of the U.S. dollar and leading to the creation of a central bank digital currency bloc, April 2022 moon. Energy security priorities could put climate transition goals at risk, the document said.
Accelerating “encryption” is another issue that policymakers will have to address in the coming years as emerging markets use crypto assets more widely. As proof of this trend, the International Monetary Fund pointed to a surge in crypto trading volume following Russia’s imposition of sanctions, including financial penalties, for its invasion of Ukraine. The report highlights:
This comes amid a prolonged increase in such cross-border transactions, underscoring the challenges of implementing capital movement measures and sanctions.
The IMF noted that capital restrictions imposed by both countries also contributed to the growth. At the same time, “liquidity in the ruble and hryvnia trading pair on centralized exchanges is still limited and has even declined recently in the ruble,” the authors commented. In their view, this makes large transfers through cryptocurrency exchanges impractical.
However, the IMF acknowledged that the crypto ecosystem allows users to circumvent some restrictive measures, such as stricter authentication requirements. The international organization acknowledged that some transactions may have been moved to less transparent platforms or non-compliant crypto service providers as a result of freezing crypto assets and blocking new ruble deposits.
IMF sees financial integrity risk in cryptocurrency mining
IMF experts believe that countries such as the Russian Federation and the Islamic Republic of Iran can use cryptocurrency mining to circumvent sanctions. They detail that the minting of energy-intensive digital currencies like Bitcoin could allow these countries to monetize their energy resources outside of the traditional financial system. Income can also be generated through transaction fees.
“At this point, the overall size of mining shares and mining revenues in sanctioned countries suggests that the magnitude of such flows is relatively manageable, although risks to financial integrity remain,” the IMF concluded. According to estimates cited in the report, Russian miners likely received nearly 11 percent of last year’s bitcoin mining revenue, averaging about $1.4 billion per month, while Iranian miners likely received about 3 percent.
Moscow officials have been turning their attention to cryptoassets as a tool to restore Russia’s access to global markets, receive payments for energy exports, finance international trade and potentially diversify its currency reserves. Government agencies have backed legalizing crypto mining as an economic activity, recently amending a new “On Digital Currency” bill to increase regulation of the industry.
Do you expect Western sanctions against countries like Russia to target cryptocurrency mining? Let us know in the comments section below.
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