- Countries like Russia could use the crypto ecosystem to circumvent sanctions in several ways, the IMF said.
- Russia could use its embargoed energy resources to mine bitcoin for hard cash, it suggested in a report.
- Foreign exchange laws and regulations should be changed if necessary to cover crypto alongside traditional assets, he said.
Russia could use the crypto ecosystem to circumvent Western sanctions in a number of ways, the International Monetary Fund has suggested, including using its embargoed energy sources to mine bitcoin.
In its recent Financial Stability Report, the IMF explained how sanctioned countries like Russia could use crypto to their advantage and advised policymakers around the world to consider changing laws to account for crypto assets.
Russia is grappling with crippling sanctions that cut it off from the global financial system and the dollar after invading Ukraine in late February, and European Central Bank chief Christine Lagarde and others have warned that the crypto was used to circumvent the measures.
“The war in Ukraine has brought to the fore some of the challenges faced by regulators in terms of applying sanctions and capital flow management measures,” the IMF said in the report released on Tuesday.
“The crypto ecosystem, however, could allow users to circumvent these requirements in several ways,” he added.
One way is to use exchanges and other crypto providers that don’t adhere to sanctions or don’t perform due diligence scrupulously. Another is the use of decentralized exchanges or technologies such as privacy mixers to make transactions more anonymous.
Countries should ensure that crypto can be placed under the same capital control umbrella as traditional assets, the financial stability watchdog has urged.
“Laws and regulations relating to foreign exchange and capital flow management measures should be reviewed and amended as necessary to cover crypto assets, even if they are not classified as financial assets or foreign currencies,” he said. he declares.
Cut off from the main foreign currency, Russia could turn to bitcoin mining to generate cash from its unwanted energy exports, the IMF has suggested. The United States has banned Russian energy imports and pressure is mounting on Europe to impose its own oil embargo.
Russia is a major player in oil, gas and coal markets, but many traders have shunned its energy exports in the face of the measures.
Over time, sanctioned countries could allocate more resources to evading sanctions through bitcoin mining, the IMF said, echoing warnings from some analysts.
“Mining energy-intensive blockchains like bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions,” he said.
Proceeds from mining on the blockchain are outside the financial system, and therefore beyond the reach of sanctions, and that miners can also generate revenue through transaction fees, the IMF noted.
But he acknowledged that the small shares of mining in sanctioned countries such as Russia and Iran, when factored into the overall amount of mining revenue, mean that the money flows involved are contents. Russian miners accounted for 11% of the $1.4 billion average revenue from bitcoin mining last year, he calculated.
The US Treasury, however, described Russia’s crypto mining industry as the third largest in the world, as it imposed sanctions on Bitriver on Thursday. It targeted the Russian virtual bitcoin miner and 10 of its affiliates in an effort to block Ukraine’s war funding channels.
The war highlights the difficulty for regulators to apply sanctions and measures to manage capital flows, according to the IMF.
“Essentially, implementing such measures requires intermediaries to verify the identity of the parties to the transaction,” he said.
He urged policymakers to develop comprehensive global standards for crypto assets and coordinate their regulatory approach with others around the world. He also recommended “more robust” monitoring of fintechs and DeFi platforms.