Will Russia turn to Bitcoin if locked out of the global financial system?

In response to Russia's invasion of Ukraine, Western countries took major action to restrict Russia's access to the global financial system. It remains to be seen whether Russia will face final sanctions.

Such a break with the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) would be a turning point in world history, arguably representing the end of the post-Cold War global democratic-neoliberal consensus dream. It could also push at least some new Russian and Russia-related financial activity onto a decentralized web, such as Bitcoin, especially given the country’s deep involvement with the technology over the past decade.

Restrictions and sanctions on Russian institutions and individuals are in full swing. On February 24, the U.S. Treasury Department announced it would cut off global dollar transactions at Russia’s two largest banks, Sberbank and VTB Bank, and confiscate the international accounts of Russian institutions and wealthy individuals. The European Union said on Thursday it would seize the personal assets of President Vladimir Putin and his deputy Sergei Lavrov.

Non-financial sanctions also came quickly and violently, with the United States restricting technology exports and imposing fiscal restrictions.

A major remaining issue is SWIFT, the communications network that coordinates global bank-to-bank transfers. European international relations scholar Dóra Piroska has called for the removal of Russian institutions from the platform. According to The New York Times, US President Joe Biden has the power to unilaterally kick Russia out of SWIFT. The Iranian institution was previously removed from SWIFT.

However, some believe such a measure is unlikely. Since its inception in 1978, SWIFT has attempted to position itself as a neutral, apolitical entity, but the real obstacles are more complicated. For example, according to Bloomberg's Javier Blas, Europe has continued to buy Russian gas even as the invasion is in full swing. European countries, including Germany, rely on the fuel for winter heating and other energy needs. Cutting off SWIFT access could disrupt this vital trade, and Russia is sure to weigh the pros and cons in its decision to invade Ukraine.

There are also humanitarian arguments for keeping Russia using SWIFT - disruption could hurt many relatively innocent people. Cutting off Russian banks from SWIFT would shrink the Russian economy by 5%, according to one estimate, which could leave many Russians in limbo.

Meanwhile, Russia has reportedly been developing its own SWIFT alternative, which former Prime Minister Dmitry Medvedev claims is functional and could replace SWIFT if necessary. This suggests that Russia has the potential to be the nexus of a second global banking network that is completely free from European and American influence and likely not based on the US dollar. Former Icelandic bank supervisor Jared Bibler tweeted that the U.S. wants to maintain dollar dominance in the long term, making Russia less likely to be delisted from SWIFT.

Will Russia Turn to Bitcoin if Locked Out of the Global Financial System?

If it were cut off, Russia could also divert some international financial activities to encrypted networks. According to the World Bank, Russia imports and exports about $675 billion a year, and the Bitcoin network can accommodate that amount with relative ease. Bitcoin processes $20 billion in on-chain transactions per day, or more than $7 trillion per year. (comparative push)