President of the European Central Bank (ECB), Christine Lagarde, has said Russian firms and individuals are using cryptocurrencies to bypass sanctions put in place by the west. Lagarde told the Bank for International Settlements’ (BIS) Innovation summit: “They are certainly being used as a way to try to circumvent the sanctions that have been decided by many countries around the world against Russia.” She added: “In Europe, we have taken steps to clearly signal to all those who are exchanging, transacting and offering services in relation to cryptoassets that they are an accomplice to trying to circumvent sanctions that are otherwise applicable.” Lagarde said crypto’s continued use remained a concern, as there are rising volumes of transactions going from the rouble to stablecoins – cryptos pegged to particular assets – and from stablecoins to other digital assets. Lagarde said that central bank digital currencies (CBDC) – crypto-like money operated by central banks – will be needed as an “anchor” to enable confidence in stablecoins.
(CBDC’s) “are associated with safety, solidity, security and benefit (from) the confidence that is often associated with the financial national institution such as a central bank,” she said.
The ECB is currently designing its CBDC, a digital euro. It is one of 16 CBDCs being actively developed, according to the Atlantic Council, a Washington based think-tank. However, in total, there are 89 CBDC projects underway. Nine countries – mostly small Caribbean nations – have already launched digital coins.
The main objective of the digital euro is to enable payments to be completed faster and cheaper; Lagarde said it was not intended as another monetary policy tool or to supersede cash.
“We want to make sure that central bank money remains accessible. We believe that a digital euro would safeguard financial stability and monetary sovereignty,” she said. The ECB is slightly ahead of its peers at the Bank of England and the US Federal Reserve on a CBDC project, with both the BoE and Fed still in the research phase. Fed chair Jerome Powell said it is better “to get it right than first.
However, Lagarde said that sentiment is changing. “The fact that President Biden signed an executive order asking players and authorities to focus on (responsible development of digital assets) is a good indication that yes, there is urgency.” China is the furthest along of the large economies with its CBDC project, a digital yuan. It is piloting it in several cities such as Shanghai, Shenzhen and Xi’an. The Beijing Winter Olympics also served as a test bed, with $315,000 dollars in CBDC transactions processed everyday.
Lagarde said China’s project was a major reason the ECB is accelerating development of the digital euro. “We couldn’t just risk being behind the curve and we needed to go ahead and to move full speed ahead.” The Bank of International Settlements announced last month that it had co-developed two preliminary platforms to facilitate international settlements with digital currencies issued by multiple central banks.
Dubbed “Project Dunbar”, the project has proved that financial institutions can use central bank digital currencies to transact directly with each other on a shared platform, the BIS said. This would potentially reduce reliance on intermediaries, cutting the cost and time for cross-border transactions.
Decentralised and volatile cryptocurrencies such as bitcoin and ether have received much of the attention in the fast-growing digital asset space, but central banks are beginning to catch up. Financial authorities in multiple jurisdictions including the UK and US, are exploring the prospect of digital versions of their own national currencies.