The Financial Blockade Is Here

Photo by Markus Winkler on Unsplash

The last time a major war was won without one of the sides even raising a finger was in the years leading up to 1947 when India got her independence from Britain. The Salt March, the Jallianwala Bagh massacre and a whole host of resistance movements took place without India brandishing knives or bayonets.

Last month even as the Ukraine war was still breaking, US President Joe Biden walked out of the Oval office after a briefing, elated. He had a single message to the press about Vladimir Putin — “He has no idea what’s coming”.

Iran — Been There Before!

To be frank, neither did we. Well!! One can always say we knew sanctions were indeed coming. After all, Iran, for example, has had sanctions against it for the longest time due to its intransigence in pursuing a nuclear policy (nuclear energy according to them, but nuclear weapons according to the West) that seems to be not in their best interests.

In fact, for the longest time Iran has been locked out of the international system, languishing in middle earth while giants around it lapped up global luxuries with wanton disregard for its plight. Having been pushed to the corner, it comes as no surprise when you see its mis-steps in Yemen, the bold attack on the Saudi refinery and now the rise of its ransomware hackers. One can’t help but wonder whether Russia is a larger version of Iran playing out on a grander scale and with far greater consequences.

Russia though was indeed different.

Bring in the Bankers!

First it was the turn of the International Financial system driven mostly by inter-governmental bodies and spearheaded by the Bank of International Settlements (B.I.S.) to put sanctions on the table. Even before the war begun, NATO’s trump card was its ability to cut Russia off from the Society for Worldwide Interbank Financial Telecommunications(SWIFT). Well!! They have partially done that now, by cutting off a few major banks in Russia from the network — giving room enough for the oxygen to ignite locally.

Nobody really expected the private sector to hop on the bandwagon. As of this week a slew of companies(domestic & foreign) and brands with investments in Russia have pulled out, some of which include Nike, McDonalds, John Deere, General Electric, Ikea, Meta, Netflix, Spotify, etc.. Then came the financial heavyweights such as Goldman Sachs, JP Morgan, accounting firms such as Deloitte — and murmurs began to surface about a brain drain about to happen in Russia. Then came the final straw — when Visa and Mastercard decided to shut up shop.

The blockade is now almost complete!! Citizens are now hamstrung to make payments globally — which makes remittances challenging. Even within Russia, local digital payments that used MasterCard / Visa now will have an end date, which is bad news if this war continues.

However, if at all the West had a master-stroke, it has already been played!! The freezing of a part of Russia’s pile of foreign currency reserves in central-banks across the world was implemented almost simultaneously with the other financial sanctions. All of a sudden, Russia found itself flatfooted, being unable to defend its currency on foreign markets, it saw it’s sovereign Rouble almost reduced to rubble. This really begs the question now — whether Putin‘s crystal ball had predicted this outcome!!

The West has managed to present a united front (at least till now) about the fact that they aren’t going to fire a single shot in this war. Financial warfare is the path they’re taking now, so much so that even when Poland offered to contribute jets to the offensive in Ukraine — the US strongly rejected it.

If this battle is financial, there are other new players at the table to contend with.

Can Crypto take Over?

This may be the moment that crypto-enthusiasts have been finally waiting for, to scale out their already carbon-intensive operations and to build a new world order based on ubiquity and fairness. It may seem to have a touch of irony that in order to scale out popular cryptocurrencies of today such as Bitcoin, Etherium, Tether or Binance to the transaction speed that either Mastercard or Visa support (to the tune of ~5000 transactions per second (T.P.S)) they would need to sleep with the enemy.

Bitcoin (~7 TPS) and Etherium 2.0 (~30 TPS) were always saddled with a slow transaction rate therefore making them unviable for financial grandeur. However new side chains such as Solana (~50,000 TPS) and Polygon (~65,000 TPS) are said to be able to match and in some cases exceed the scale of established financial payment processors.

The question is how a nation of approximately 150 million people could make this transition and what discomfort it would cause. Approximately as of date roughly 11% of Russians own some form of cryptocurrency. Here too, NATO and its allies are pulling out all stops to ensure that Know Your Customer (KYC) norms on Centralized Cryptocurrency exchanges prevent Russians from using them. The only outlet left seems to be decentralized exchanges that do not store any information about their users hence making them the perfect cover.

Photo by Tezos on Unsplash

Elsewhere across the battle lines, Volodymyr Zelenskyy fighting an on-going onslaught of Russian forces is able to raise funds via cryptocurrency exchanges such as Kuna. It’s important to note that even though sanctions are not imposed on Ukraine, they’re fundraising via crypto since this is the quickest way to raise funds bypassing all the intermediaries who are eager to take their slice of the pie.

It is expected that this whole financial blockade could possibly result in the creation of an alternate financial universe with China’s Central Bank Digital Currency (CBDC) occupying pole position. The sad thing is that any CBDC can in the future (if powerful enough) carry out a similar kind of financial blockade, like the one we are witnessing now against Russia.

In the end, it could be left to Crypto-currency, which had somewhat of a messy start, to balance the scales and provide financial inclusion for all the right reasons. Even as Transaction speeds of these blockchains increase and Venture Capital tech-spend gets funneled into them, this democratization of finance will prevent such Blockades from being used as weapons again.

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Mario Rozario

Mario Rozario

Runner at Dawn: Trainer by Day: Reader by Night: Dreamer at Midnight..