Economic sanctions by Western countries, particularly following the full-scale Russian invasion of Ukraine in February 2022, have restructured the foreign trade of Russia by restricting access to foreign currencies and global banking networks. Nevertheless, to circumvent this curb, the Russian government under Vladimir Putin has expanded the use of alternative currencies and digital assets by integrating cryptocurrencies and stablecoins into cross-border payments and oil transactions.
Crypto as a Sanctions Workaround: Explaining the Wartime Trade Strategy of Russia
Russia has turned to a digital escape hatch as the West tightens its financial grip on Russian trade. The Putin government has redesigned its trade infrastructure by integrating digital currencies directly into its international transactions.
Background
Specific trade-related sanctions by the United States government and the European Union have limited Russian trade activities in the West. This has also resulted in Russia without free access to U.S. dollars and the euro. Moreover, because access to the traditional global banking system has been restricted, it is also unable to utilize common channels for fund transfers.
The initial workaround for Russia is to increase its trade with China in renminbi and with India in rupees. However, transactions in these currencies come with risks. Large Chinese and Indian banks fear secondary sanctions from Western governments. Neither the renminbi nor the rupee is a freely convertible global currency. Converting or moving them creates bottlenecks.
Holding foreign partner currencies concentrates risk. Specifically, if Russia relies only on the yuan or rupees, it becomes vulnerable to policy changes by China or India. Remember that China has tight control over the value of the renminbi. Russia has also accumulated rupees worth billions of dollars in Indian banks that it cannot readily spend. This has created a reserve imbalance.
Developments
Putin signed a law on digital financial assets on 1 January 2021. This was a year before the invasion of Ukraine. However, although it provides a preliminary legal framework, it requires entities involved in issuing, accounting, and transmitting digital financial assets to seek approval from the Bank of Russia and bans digital currencies as a mode of domestic payment.
The eventual Western sanctions forced the Russian government to run limited experiments with cryptocurrencies in 2023 for export receipts and offshore settlements. It was in 2024 when the Russian parliament passed legislation formally legalizing the experimental use of cryptocurrencies for international transactions. Implementation started on 1 September 2024.
Russian companies were already using Bitcoin and other cryptocurrencies in international trade under the new legal regime by late 2024. Russia introduced the ruble-backed stablecoin A7A5 and incorporated it into cross-border payments in 2025. This rapidly scaled its transaction volumes before Western sanctions specifically targeted the digital financial asset later that year.
Cryptocurrencies resolve the problems arising from a lack of access to major global currencies and the global banking system. These financial assets operate on decentralized blockchains that do not require permission or clearance. Less liquid currencies can be converted into cryptocurrencies that can then be used for global trade transactions or backed into Russian rubles.
Mechanism
Nevertheless, to understand how Russia has been using cryptocurrencies to circumvent Western economic sanctions and sell its oil in countries like China and India, it uses a multi-step process to hide the trail of money. The first involves receiving payments in local currencies like renminbi and rupee. A middleman receives these payments and converts them into cryptocurrencies.
The converted cryptocurrencies are sent to a Russian account, where they are either held or converted into rubles. Note that Bitcoin is the preferred choice, but the A7A5 stablecoin has also been used. The process moves money across borders without passing through Western banks and makes it nearly impossible for Western governments to track and freeze the transactions.
Cryptocurrencies are essentially used as an intermediate layer and not a final layer. Bitcoin is used for its global reach, and stablecoins for their stability. Moreover, ruble-backed tokens are used for domestic integration. These different use cases are combined into a layered system designed to keep trade functioning under financial sanctions and overall economic sanctions.