The Economist - UK (2022-03-19)

The Economist March 19th 2022 Finance&economics 69

Spainaretargetingrenewable­powergen­
erators,whichhavenotexperiencedthe
sameincreaseincostsasgeneratorsthat
usefossilfuels.RichardHowardofAurora
Energy,a consultancy,saysthatthisraises
the“riskpremium”ofinvestinginrenew­
ables—exactly what legislators want to
avoid.PeterStylesoftheEuropeanFedera­
tionofEnergyTraders,a tradebody,notes
that Spain’s scheme stops green­energy

generatorsaccruingexcessprofitstobegin

with,whichwilldistortthewaypricesare

setinthemarket.

TheirmomentumacrossEurope also

createsa fiscalopeningthatmaybehardto

close.Thecommissionrecommendsthat

allwindfalltaxesshouldbewounddown

bytheendofJune.ButSpainhasalready

extendeditsclawbacksonce.AndItaly’s

measureswilllastuntilDecember.n

Cryptoandsanctions

False promise

T

o theirchampions,cryptocurrencies
are supposed to be a libertarian Utopia.
Because  tokens  are  created  and  moved  by
loose,  decentralised  networks  of  individ­
ual  computers  based  in  dozens  of  coun­
tries,  cross­border  transactions  can  be
quick  and  in  theory  are  free  from  control
by  intermediaries,  such  as  banks,  which
can be regulated by national governments.
Critics of crypto­finance have long looked
askance at the same system. To statists, it
represents the tyranny of techno­anarchy.
Russia’s  invasion  of  Ukraine  and  the
West’s  subsequent  sanctions  on  Russian
banks,  companies  and  elites  appears  to
turn  on  its  head  the  debate  about  whom
crypto helps and hurts. Though politicians
and  regulators  in  America  and  Europe  at
first  feared  that  people  and  entities  hit
with  sanctions  would  use  cryptocurren­
cies  to  dodge  the  restrictions,  little  evi­
dence of such activity has materialised. In­
stead, crypto institutions appear to be un­
der  the  thumb  of  governments,  too.  And
there has been a huge surge in crypto dona­
tions to help the government in Ukraine. 
Crypto’s  decentralised  network  is  sup­
posed to be supranational and its users are
meant  to  be  anonymous.  This  makes  it
seem like a useful tool for sanctions­dodg­
ing.  Certainly,  there  is  evidence  that  Rus­
sians  have  been  buying  more  crypto. But
this may stem from a desire to hold an as­
set that is not plunging in value. The rouble
has tumbled by about 25% against the dol­
lar  since  February  23rd,  whereas  bitcoin
has  risen  against  the  greenback.  For  oli­
garchs looking to dodge sanctions, though,
crypto has three main flaws. 
The first is that the infrastructure, such
as large exchanges, does not really exist in
Russia.  “Had  the  Russians  wanted  to  use
blockchain  infrastructure  for  sanctions
evasion, they would have had to have taken
a very different regulatory approach,” says
Tomicah  Tillemann,  a  former  staffer  for

President Joe Biden, who now advises Ka­

tie Haun, a crypto­focused venture capital­

ist. “Russia, along with a number of other

authoritarian  societies,  has  been  pretty

hostile  to  digital  assets.”  Thus  Russians’

ability  to  convert  significant  amounts  of

wealth into crypto is limited.

The second flaw is that it is not possible

to buy most everyday items or financial as­

sets with crypto, which means that a sanc­

tions­dodger must at some point leave the

crypto­sphere. “Ultimately what they real­

ly need to do is get access to some form of

fiat  currency,  which  becomes  more  chal­

lenging,”  said  Christopher  Wray,  the  head

of  the  fbi,  in  a  usSenate  hearing  on  the

Russian  invasion  on  March  10th.  That  re­

quires interacting with a crypto­exchange. 

Though  early  iterations  of  some  ex­

changes  resisted  the  need  to  implement

“know  your  customer”  (kyc)  anti­money­

laundering  measures,  many  have  acqui­

esced as they have become regulated insti­

tutions.  Some  are  publicly  listed.  Most

have a presence in America and Europe. Bi­

nance, the largest exchange, implemented

a kyc policy in 2021, requiring those using

it to identify themselves to the firm.

The message from regulators to ex­

changeshasbeenunanimous.America’s

Treasuryhasstressedthatitssanctionsap­

ply“whethera transactionisdenominated

intraditionalfiatcurrencyorvirtualcur­

rency”,a messagereinforcedbyanexecu­

tiveorderondigitalcurrencyfromMrBi­

denonMarch9th.TheWhiteHousehasal­

soissueda statementwiththeleadersof

otherg7 countriesandtheeu, vowingto

“imposecostsonillicitRussianactorsus­

ingdigitalassetstoenhanceandtransfer

their wealth”. The crypto industry has

rushed to accommodatethese requests.

Coinbase,anotherlargeexchange,hasfro­

zen25,000Russianaccounts.Binancehas

saiditwillfreezetheassetsofpeoplewho

havebeentargetedwithsanctions.

Thethirdproblemisthatmovingmon­

eyaroundincryptoisnotasprivateasis

widelythought.Governmentsleuthshave

investedtimeandenergyintryingtolink

supposedlyanonymouswalletswithreal

people,withsomesuccess.Andasblock­

chaintransactionsarepublic,onceidenti­

fied,itiseasytotracethehistoryoffunds.

In December the fbi managed to seize

$3.6bn­worthofcrypto­assetsrelatedtoa

theftfromanexchangein2016.

Cryptomayturnouttobefarmoreuse­

fultothoselookingtomoveintheopen,

ratherthanintheshadows.OnFebruary

26ththeofficialUkrainianTwitteraccount

published digital­wallet addresses

throughwhichit isacceptingbitcoin,ether

andothertokens.Donationsquicklyflood­

edin.“Cryptoreallyhelpedduringthefirst

fewdaysbecause wewereable tocover

someimmediateneeds,”saysAlexBornya­

kov,Ukraine’sdeputyministerfordigital

transformation. Nearly $100m­worth of to­

kens has since been donated to those and

other wallets set up by private initiatives. 

Getting  money  to  war  zones  is  notori­

ously  hard.  In  2008  Mr  Tillemann  visited

Tbilisi  in  Georgia  with  Mr  Biden,  then  a

senator, in the middle of Russia’s invasion

of  the  country.  “It  became  very  obvious

that we were going to have real challenges

getting in resources,” he says. Donors were

forced to ship pallets of $100 bills into war

zones in Iraq and Afghanistan. 

Moving money out of war zones to buy

supplies can be just as difficult. In the cha­

os of the war, it became increasingly diffi­

cult  to  pay  in  dollars  or  euros,  especially

abroad.  “So  we  needed  a  tool  to  quickly

perform  those  transactions.  And  crypto

was  our  first  choice,”  says  Mr  Bornyakov.

Although most suppliers did not operate in

crypto, they agreed to accept it, he says. Uk­

raine has spent some $30m on things like

bulletproof vests, night­vision goggles and

medicines. Around a fifth of that was spent

directly in crypto. 

The war has madeitclear that there are

serious  uses  forcrypto.But  it  is  now  po­

liced seriously, too.n

N EW YORK
Sanctions-dodgers hoping to use crypto maybedisappointed

Out of the rubble

Source:RefinitivDatastream

150

125

100

75

Jan Feb Mar

Russianroubleper$

222,invertedscale

50

45

40

35

Jan Feb Mar

Bitcoin price

222, $’

Russia invades Ukraine