The Russian-Ukraine conflict has led the West to impose severe financial transactions on invading Russia. The targetted attempt at the Ruble presents a notable geopolitical transformation, which could potentially lead several nations into crypto adoption.
The Current Global Scenario
National reserves and cross-border payments in the present age are conventionally perceived as state property. They are exempted from punitive actions unless the US is directly involved in the war. However, recent events demonstrate a complete upheaval from the norm with the US, EU, and their allies weaponizing the USD-driven worldwide financial system, freezing Russia’s banks and her foreign currency reserves. However, the act also proves detrimental for smaller developing nations.
SWIFT Ban on Russia
The SWIFT network is the preferred global network for carrying out financial transactions between major international banks. The Belgium-based financial messaging network is highly efficient, used even in the domestic sector across some nations. An acronym for Society for Worldwide Interbank Financial Telecommunication, SWIFT executes over 42 million transactions a day. And, while the network supports all forms of currency denominations, over 40% of transactions are carried out in USD, empowering the Northern American nation with the ability to execute and impose sanctions.
Other Transaction Systems: CIPS and SFPS
The Cross-Border Interbank Payment System(CIPS) was launched in 2015 by China from promoting the international usage of its currency, the yuan. The project proved beneficial during the middle of the US-China trade wars, as the world’s most populous country managed to persuade its international investors into switching to CIPS. In 2021, just 3% of SWIFT transactions featured the yuan. Meanwhile, CIPS transactions grew by almost 60% with an 80% increase in transaction values, amounting to 64 trillion yuan.
Russia had also launched its own alternative competitor to the SWIFT ecosystem- the SFPS in 2017. Less prevalent due to transaction costs and the low value of the Russian economy, the System for Transfer of Financial Messages(SFPS) is recently gaining serious traction with Western sanctions driving Moscow to advocate its usage among Russia’s key trade partners, including China, India, Israel, and the UAE.
The Possible Outcome of SWIFT vs Non-SWIFT
The worldwide economy for oil and gas amounts to 7% of the global GDP at $6 trillion. This is why crude oil prices are significant determining factors in domestic economies. The concept of the “petrodollar”, born from US-UAE deals in the 70s, led to the global dominance of the US currency. But, the recent developments pose a serious threat to the dollar’s supremacy.
Russia is pressuring European gas and oil-importing nations to transact in Rubles. While some nations have declined, a few have agreed. However, both China and Saudi Arabia have been seriously considering their prospects, with the former opting to pay in yuan. The ruling governments have already decided to connect CIPS and SFPS according to a previous month’s announcement. The new framework will incorporate CBDCs from both nations- the Digital Yuan and Ruble. In addition, India has also agreed to the establishment of a new framework with Russia.
The alignment of major economies like China, India, and Russia against the US and the West will lead to serious challenges to the SWIFT finance system. Smaller nations will be forced to pick sides in the bifurcation between SWIFT and non-SWIFT. A logical alternative would be opting for currency/payment systems immune to geopolitical weaponization. Cryptocurrencies may very well be the escape route from remaining at the mercy of global superpowers.
Crypto as Substitute Currency
One of the primary challenges for mainstream crypto adoption is its implementation through product/service charges. Businesses opt to keep product pricing in the currency used for purchase/additional expenses, which in general cases, is the national currency.
The currency or denomination is determined by the seller/service provider and not by the consumer. Businesses usually do not opt to purchase overseas products in their non-native currency due to the associated fluctuation risk. Thus, for Bitcoin-based pricing, associated operational, overhead, or purchase costs should also transition to the same crypto denomination(Bitcoin).
While nations like El Salvador, Ukraine, and others have adopted Bitcoin as legal tender, the adoption could be accelerated with major energy-exporting countries like Qatar and Venezuela switching to the same. The acceptance of crypto denominations by the oil and gas sector is thus crucial for businesses to start offering crypto-pegged products and services.
Global crypto trade is leading questions regarding its relevance as a global reserve currency. Recent events, including the Russia-Ukraine War, and the development and incorporation of non-SWIFT payment systems have set the ground right for crypto’s growth and relevance. However, digital assets must be considered as viable payment options across the oil and gas sector to progress into mainstream acceptance.