Following the invasion of Ukraine by Russian forces, several countries (i.e. the US and several EU members) imposed strict economic sanctions on Russia that will, among other things, prevent some local banks from accessing the Society for Worldwide Interbank Financial Telecommunications. (QUICK).

Some Russian banks kicked out of SWIFT

This move was likely fueled by the fact that previous restrictions proved not to be enough to deter Russia. As such, Western countries eventually had to resort to banning several Russian banks from SWIFT.

In particular, the network is used to facilitate transactions between more than 11,000 financial institutions around the world except North Korea. By disconnecting Russian banks from the global financial system, it will be difficult for the country to spend its $640 billion in international reserves.

Hedge fund billionaire Bill Ackman noted on Twitter the effect this could have on the Russian people, saying: “If I were Russian I would get my money out now. Bank runs could start in Russia on Monday.”

What about Bitcoin?

Naturally, such severe restrictions could have disastrous effects on the Russian economy. At the same time, many analysts believe that Russia does not really have effective alternatives, although blockchain technology and cryptocurrencies, especially Bitcoin, can be seen as one of them.

Due to its censorship-resistant, open, neutral, and permissionless nature, cryptocurrencies can theoretically become a viable instrument that a country like Russia could use to evade sanctions. With Bitcoin, the country can continue to participate in international trade as long as it finds partners willing to accept digital assets.

Meanwhile, the country has already been working on various alternatives for some time, including the digital ruble, a Central Bank digital currency project that is currently in its pilot phase.

If Russia chooses this route, it will not be the first nation to adopt cryptocurrencies to evade sanctions. Recent reports showed that North Korea is already funding its nuclear and ballistic programs using crypto stolen by state-backed hackers. Iran has also used cryptocurrencies to evade sanctions imposed on it by the United States.

But will it work?

The overall viability of any alternative to SWIFT remains questionable as the network is widely adopted around the world and none of its replacements have been able to compete in any meaningful way.

For example, SPFS, an alternative system in Russia, is supported by only 20% of local banks as of 2020. Even the most popular Chinese option, the China Cross-Border Interbank Payment System (CIPS), accounts for only about 0.3% of SWIFT. Size.

In conclusion, Bitcoin could come to play a critical role in determining the effectiveness of the economic sanctions imposed on Russia.

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This post With Russia cut off from SWIFT, could Bitcoin play a role in avoiding sanctions?

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