EU Eyeing Cryptocurrencies in Efforts to Bolster Sanctions on Russia

Key Insights:

• EU central bankers and finance ministers want to include crypto in sanctions.
• The EC is currently studying how much crypto usage has increased since the invasion of Ukraine.
• Russia is very unlikely to adopt crypto since it does not have enough liquidity.

Even though it has been widely disputed, politicians are still concerned about cryptocurrencies and their potential for sanction evasion. The European Union is the latest to consider stricter measures to control crypto assets as it fears Russia will start adopting them.

According to the Financial Times, EU finance ministers and other officials discussed the risk that cryptocurrencies could be used to circumvent sanctions. Among the attendees in the video conference call on March 2 was Christine Lagarde, the European Central Bank president, and French finance minister Bruno Le Maire.

The commission aims to “further increase the effectiveness” of the sanctions and encompass cryptocurrencies though it is unclear how they can achieve this without restricting their use for everyone else.

As reported by FXEmpire, major exchanges have already agreed to block the accounts of sanctioned individuals or organizations, but this doesn’t appear to be enough.

EU Crypto Crackdown

Lagarde, who is generally anti-crypto as most central bankers are, wants to impose legislation on companies engaged in crypto assets or providing services related to prevent them from dealing with clients in Russia.

The EU’s economics commissioner, Paolo Gentiloni, also thinks that the increase in crypto use in recent days “could be a way to bypass the measures taken to freeze the assets in Russia.”

The European Commission is currently studying whether crypto assets are being used to get around sanctions, according to Reuters. “The increase in value of some of these assets may be a response to attempts to circumvent the sanctions. We are looking into this, but no decision has been taken,” stated an EU official.

Since the invasion of Ukraine began, cryptocurrency markets have gained 13% or more than $200 billion in total market capitalization.

Anti-crypto Senators in the United States including Sherrod Brown and Elizabeth Warren have also been calling for tighter restrictions on cryptocurrencies. In a letter to Treasury Secretary Janet Yellen, they wrote:

“Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion.”

Russia Not Likely to Adopt Crypto

It has been widely reported and now generally accepted that Russia is very unlikely to adopt Bitcoin or any digital assets as a currency to avoid sanctions. There simply isn’t enough liquidity in crypto markets for a country of its size and currency demands, and it has ample supplies of gold and Chinese currency it can turn to.

Still, policymakers are looking for any excuse to crack down on the crypto markets that they cannot control.