How the Ukraine War Put Crypto Remittances in the Spotlight

By Kate Anderson 

The increasing global adoption of cryptocurrency has shaken up how remittances have flowed around the world. This has been brought into sharp focus by the war in Ukraine. When traditional financial routes were shut down, the crypto financial networks emerged as a way to send funds in and out of the country. As a result, the Ukraine war has accelerated a growing trend towards cryptocurrency becoming a mainstream option for international money transfers.

Crypto remittances as a growing trend

Crypto remittances are not a new concept. We have already seen developing countries turn towards cryptocurrency for money transfers as a way to avoid some of the high costs charged by traditional banks and money transfer providers. In countries where there are inflationary pressures or a weak local currency, cryptocurrency can represent an efficient and low-cost way to send money. And crypto exchanges have also begun to explore this new avenue. Coinbase launched a pilot in February 2022 that let users send crypto remittances to beneficiaries in Mexico. Under the scheme, customers use a redemption code generated by the app to cash out at more than 37,000 retail locations throughout the country.

The Ukraine war, crypto and money transfers

When Russia invaded Ukraine, the role of crypto became pivotal for the movement of funds across the border. Very early on in the conflict, the National Bank of Ukraine announced a series of measures that restrict digital money transfers. These include the suspension of the issuance of e-money and the replenishment of electronic wallets with e-money. It has also suspended the foreign exchange market, limited cash withdrawals and prohibited the issuance of foreign currency from retail banks.

All of this has made it challenging for traditional money transfers to flow in and out of the country. While several money transfer providers have stated their intention to continue to support transfers into Ukraine, restrictions have made the environment challenging. And sending money out of Ukraine has become near impossible.

But while the traditional banking routes appear frozen, individuals are still able to access and transact within the crypto financial network. In the last week of February, trading on the Ukrainian crypto platform, Kuna, reached its highest level since May 2021. The Ukrainian government has even turned to crypto for donations to help its war effort.

The reality of using crypto for money transfers

It’s not as simple as cryptocurrency can fill the gaps left by more traditional forms of international money transfers. Users need to have a relatively sophisticated understanding of how it works to take advantage of it. In the midst of the chaos of war, people on the receiving end may not be equipped to handle crypto remittances. They will also need access to a working device and an Internet connection, which is extremely challenging under the circumstances.   

Even in a peacetime setting, price fluctuations mean that there is an element of uncertainty as to how much your chosen crypto coin will be worth when the recipient sells them. Additionally, there are concerns that human error can be made while making transactions and, as it is a largely unregulated market, trades cannot be reversed.

The future for crypto remittances

There is no denying that the war in Ukraine has had a significant impact on the future of crypto and has highlighted crypto’s place in the modern world. But while crypto remittances have given Ukrainians – and those wanting to send money to help – an alternative to more traditional banking methods, it doesn’t mean it is a foolproof solution. Cryptocurrencies still carry high levels of risk.

Having said that, it has proven that there is a place for crypto remittances in the market. Looking ahead, we could easily see this trend grow. Riding on the back of the promise of lower transaction costs and a more efficient way of sending money as well as providing a way of transferring money internationally when traditional financial networks are not at our disposal.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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