25 March 2022

FinTech Perspectives: Crypto innovation and government regulation in times of war

Governments and legislators in the EU and US have issued a number of crypto related communications during the last days and weeks. They coincide with (and sometimes react to) the war in Ukraine and the horrors that it has brought. In the most deplorable circumstances, the advantages of crypto technology could hardly be displayed in a more forceful way. For those in less stable countries, this is no news. They have known for long that there is benefit in disassociating  the value of currencies from the woes of political events on the ground. But as there are benefits, there are also risks. And the war in Ukraine has highlighted those just as well.


Managing these risks without curtailing innovation is the task ahead. The rule of law must play a relevant role in this effort: “decentralized but regulated” should be a guiding principle. Legislators in the EU, the US and elsewhere have started to understand this. They are now trying to strike the balance right. This process will take time – and is iterative by necessity. It will also require meaningful international alignment – as a high level of uniformity across jurisdictions is a necessary ingredient for a new overall system to emerge over time. Supporting this process is a very worthwhile endeavour for everybody involved.       

Ukrainian refugees are seeking shelter in neighbouring countries and beyond. Some of them managed to bring cash – bundles of Ukrainian Hryvnia. Yet their hope to turn it into something to eat vanished as soon as they tried. Aside from the disastrous exchange rate, there is hardly an institution willing to exchange Ukrainian Hryvnia against Euro, US Dollar or any other tradable currency. In the end, their plight is the same as for those that could not bring any money in the first place – as their savings were locked in a crashed bank back in Ukraine. Most certainly, neither these banks, nor the Ukrainian central bank or the Ukrainian government can be blamed for the drainage of their people’s savings. But all the same, the money is gone. For all those affected, it is no relief that holding a private key for an e-wallet filled with crypto would have made all the difference. The Ukrainian government had learned that lesson fast – and acted accordingly. Through crypto donations, it raised and still raises funds that it can convert into food, commodities, or other useful things. Whilst these donations to Ukraine could have been made in traditional ways, through accounts of institutions abroad – any such handling would have been more costly and would have taken more time. It would have also required significant trust by all those concerned in the ability and loyalty in a foreign organization and its people – no easy thing in times of war and distress.