Putin embraces digital currency as sanctions cripple Russia’s economy

Putin called for a new blockchain-based digital currency payment system for cross-border transactions amidst the wave of sanctions and international pressure on Russia’s economy.

Putin highlighted the tense relationship between Russia and the West during a Russian majority-owned Sberbank conference on Artificial Intelligence. According to him, these tensions threaten financial flows and international operations.

“We all know very well that under today’s illegitimate restrictions, one of the lines of attack is calculations. And our financial institutions know this better than anyone because they are exposed to these practices,” Putin said.

The proposed solution is to set up a new system of international money transfers independent of banks and third parties, which could be created using digital currency technologies.

“Today, the system of international payments is expensive, its system of correspondent accounts and regulation is controlled by a narrow club of states and financial groups. They control everything. Based on the technologies of digital currencies and distributed registries, it is possible to create a new system of international payments, and much more convenient, but at the same time completely safe for participants and completely independent of banks and third-party interference,” Putin added.

Since Russia’s illegal invasion of Ukraine, Western authorities continuously warned of the Kremlin’s possible attempts to evade sanctions using cryptocurrency.

Russia’s central bank pushed to legalize the use of cryptocurrency for cross-border payments and international commerce.

“Crypto-for-imports schemes would open up many questions about how to make sanctions against countries like Russia more effective,” blockchain research firm Chainalysis said in a report.

Senators Elizabeth Warren and Mark Warne also suggested that Russia may use cryptocurrencies to circumvent the broad new sanctions.

In response, the EU targeted Russian crypto wallets and currencies in the fifth round of economic and individual sanctions.

Several independent institutions – the World Bank, the International Monetary Fund (IMF), and the Organisation for Economic Cooperation and Development (OECD) – predict a 3.4%-5.5% drop in Russia’s GDP by the end of the year and a continuous shrink in 2023.