[Opinion] Virtual Currency: A New Turning Point Expected

Juyushin, Dean of the Graduate School of Technology Management at Sogang University

Sometimes a single event can lead to completely unexpected changes, and the current Russian invasion of Ukraine seems to be such a case. Due to Russia's military actions, digital currencies such as cryptocurrencies and CBDCs (Central Bank Digital Currencies) are unexpectedly in the spotlight.

This phenomenon emerged as Russia, pressured by being expelled from the US-led international interbank communication network SWIFT by the US and Europe, hurriedly began using cryptocurrencies as a means of fundraising. Cryptocurrencies are digital currencies issued by the private sector, not controlled by central banks, and based on blockchain technology, which allows for anonymity of information and can bypass global payment systems like SWIFT. For Russia, which cannot repay matured debts or receive export payments despite having money, cryptocurrencies are the only available option.

What further amplified interest was US President Biden's executive order on 'cryptocurrency research.' On the 9th, he signed an executive order urging support for cryptocurrency innovation and research on CBDCs. This has led to expectations that the institutionalization of cryptocurrencies and the issuance of a digital dollar, which can be considered the US CBDC, will accelerate.

Until now, the US has largely refrained from public discussions about issuing a CBDC. So why did President Biden direct support and research for digital currencies? First, experts point out that the Ukraine crisis could accelerate Russia and China’s efforts to build an international payment network using digital currencies. Regardless of how this war ends, Russia’s return to SWIFT will be difficult. Russia may collaborate with China, India, and others to establish a new international payment system that could include CBDCs and cryptocurrencies issued by various countries. In particular, China is likely to see this as an opportunity to establish the 'digital yuan' as an international settlement currency. China already has a cross-border payment system (CIPS). In the mid to long term, this could become an international system utilizing digital currencies from China, Russia, India, and others.

Second, a renewed recognition of the power of cryptocurrencies is believed to have hastened the 'digital currency executive order.' The US expected that expelling Russia from SWIFT would immediately trigger a financial panic such as a default by Russian banks, but this prediction seems to have been off. Although Chinese support is possible, cryptocurrency-based fundraising is surprisingly active. Currently, over 12 million cryptocurrency wallets are active among Russian citizens, with a total balance of $23.9 billion (29 trillion won). Third, in the mid to long term, there is a high possibility that voices calling for a digital reserve currency will emerge in Europe, including the UK and Germany. Therefore, the US aims to maintain 'digital dollar hegemony' in the digital international payment network by preemptively leading discussions on digital currencies.

In any case, Russia’s invasion of Ukraine is expected to mark a turning point in the digital currency environment, including cryptocurrencies. Competition to issue digital currencies will begin, and institutional discussions to regulate the problems of cryptocurrencies and support innovation will intensify. Even regulations, as long as they are not bans, can be interpreted as protective measures for new industries from another perspective. The disappearance of uncertainty is at least a positive development for cryptocurrencies. This will be a key point to watch going forward.

Jung Yoo-shin, Dean of the Graduate School of Technology Management, Sogang University

This content was produced with the assistance of AI translation services.