Apple today joined the list of payment services providers that have cut or limited their services for Russian users, following Russia’s invasion of Ukraine. The company has removed access to Apple Pay for sanctioned banks, following similar moves by Google, Visa and Mastercard, and a ban of some Russian banks from the SWIFT banking network.
The price of Bitcoin has soared 27% since sanctions were introduced, prompting speculation that Russia is using cryptocurrency to circumnavigate them.
Earlier this week, both major global payments processors – Visa and Mastercard – announced that they had blocked certain financial institutions in Russia following international sanctions. Neither company specified which institutions had been blocked, but they are likely to include VTB Bank and Sberbank, two of Russia’s biggest banks that have been sanctioned.
Meanwhile, digital cross-border payment services including Wise and Remitly have also suspended money transfers to Russia, and both Google and Apple Pay have blocked sanctioned banks from their own payment services. Russian banks' apps may also soon stop working on Apple’s iOS operating system, according to the BBC.
On Sunday, the EU, US and allies agreed to disconnect some Russian banks from SWIFT, the global interbank messaging system. Today, the EU named the seven banks affected. "They are all based on their connection to the state and the implicit connection to the war effort," an official told the Reuters news agency. "We have not gone for a blanket ban across the whole banking system."
Nevertheless, the cumulative effect of multilateral sanctions on Russia’s economy has led to a 30% drop in the value of the rouble. This has reportedly triggered long queues at ATMs in Russia, prompting fears of a bank run.
Is Russia using crypto to circumvent sanctions on payments?
Russia has been preparing for international sanctions by establishing its own payments infrastructure. In 2014, after the US threatened it with disconnection from SWIFT, it established its own alternative, the System for Transfer of Financial Messages (SPFS). According to the Moscow Times, one-fifth of domestic commercial payments are made using the system, which has more than 400 user organisations.
That year, Russia also set up its own consumer payments system, Mir. According to the country’s central bank, Mir accounts for just 25% of all card transactions in the country and 32% of all new cards issued.
But there is speculation that Russia is using cryptocurrency to circumvent sanctions. Although Russia's central bank warned in January that crypto posed "significant risks for the economy and financial stability," President Vladimir Putin hinted shortly after that he had a more positive view. "Of course, we also have certain competitive advantages, especially in the so-called mining, I mean a surplus of electricity and well-trained personnel available in the country," he said.
In the past week, the price of Bitcoin has seen a 27% increase. The total market capitalisation of Bitcoin is now worth more than all roubles in circulation, according to data from CoinMarketCap.
Experts are divided on cryptocurrency's viability as an alternative payments mechanism for Russia.
"Cryptocurrencies will provide extensive opportunities for Russia to circumvent international sanctions," Alex Lord, an analyst geopolitical intelligence company Sibylline told Tech Monitor last week.
But Loughborough University economist Professor Alistair Milne said that while crypto may support personal transactions, "the liquidity [is] not there for transactions in the tens or hundreds of millions of dollars.”
Meanwhile, the Ukrainian government has been raising funds through cryptocurrencies. On February 26, the country’s digital transformation minister Mykhailo Fedorov launched a call for cryptocurrency donations two days after the invasion began, calling for people to “stand with Ukraine”.
Since then, the Ukrainian government has raised almost $38m through over 48,000 cryptocurrency donations, according to data from Elliptic.
In a tweet on 27 February, Fedorov called on all cryptocurrency exchanges to “block addresses of Russian users" including "Russian and Belarussian politicians", as well as “ordinary users".
In response to these calls, the chief executive and founder of Binance told BBC’s Radio 4 Today programme this morning that it was impossible to monitor “tens of thousands of exchanges globally.”
“We don’t control the industry. I can publish my sanction list, you can publish yours, guess what? No one else is going to follow it. It just moves Russian users to other smaller platforms.”
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