Nations adopting cryptos as legal tender to get around US sanctions: is Russia the driving force?

Countries with an adversarial relationship with the US are increasingly turning to cryptocurrencies to dodge economic sanctions and fight back against American strong-arm tactics.

by Jo Perks for CNR

Sanction-hit countries including Iran, Venezuela and North Korea are exploiting the decentralised nature of cryptocurrency transactions to sidestep US-dollar-based commerce and operate outside of the SWIFT global interbank system.

Away from the prying eyes of international financial regulators, cryptocurrencies can be utilised by nations to conduct global business deals in secret, without any Western interference. Bans on the buying of US dollars can be sidestepped through the mining and selling cryptocurrencies – a tactic North Korea is using to generate an estimated $15m and $200m.

United by a common cause, countries under US sanction are working together to exploit the opportunities provided by cryptos. With a helping hand from Russia, Venezuela and Iran are taking things up a notch by setting plans in motion to launch their own state-backed cryptocurrencies.

Back in May, Iran took part in high-level discussions with Moscow about how to use cryptocurrency to circumvent US sanctions. Then, following Donald Trump’s withdrawal from a deal to lift sanctions in return for curbing its nuclear programme, Tehran unveiled detailed plans for its national cryptocurrency. Their motivations were made clear when Alireza Daliri, a senior Iranian science and technology official, was quoted as stating the new digital currency would “help us at the time of sanctions.”

Meanwhile, in an attempt to stem the hyperinflation crippling its economy and raise foreign investment, Venezuela launched its controversial oil-backed cryptocurrency, the petro, to run alongside the existing bolivar. At the crypto’s official launch, President Nicolas Maduro boasted that the new digital currency would act as “kryptonite” against the power of the US government and would aid the “fight against American imperialism.”

Despite denials from the Kremlin, evidence points to Russia being a driving force in the creation of the petro, causing speculation that it’s being used as a test-run for a future sanction-busting crypto-ruble. It’s too early to decide if the petro experiment has been a success, as despite Maduro’s claims to have raised billions in hard currency, investigations by Reuters found scant evidence of any thriving petro trade and unearthed suggestions that the whole endeavour has been no more than a scam.

So what is the likelihood that sanction-hit countries could unite to create an alternative crypto-based financial system operating entirely outside of SWIFT? According to Martin D.Weiss, founder of US independent rating agency, Weiss Ratings, the idea is not as far-fetched as it might seem and requires urgent review by global banking authorities:

“With digital money, a consortium of countries like North Korea, Venezuela, Iran, Russia and others could establish a system of payments that is faster and more efficient. Moreover, thanks to the higher level of security that this new form of digital money could provide, their payment system could be an attractive alternative to countries seeking to avoid sanctions.”

Should this happen, the US’s grip over the global banking system will be severely weakened, diminishing the non-military options available for reigning in rogue nations and leaving the world an arguably more dangerous place…

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