Russia Sanctions May Lead More Countries To Consider CBDCs, Ex-Central Banker Says

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June 26, 2023 06:55 EDT

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Sanctions imposed on Russia as a result of its war in Ukraine could lead more countries to consider digital versions of their own currencies – known as central bank digital currencies (CBDCs) – as a counterweight to the dominant role of the US dollar, a former Bank of Japan (BOJ) executive has said.

According to Hiromi Yamaoka, a former head of payment and settlement systems at the Bank of Japan, “a country like China” could view the sanctions on Russia as a way to promote the use of its existing digital yuan for cross-border transactions.

Such a move would effectively create “a currency bloc” that would counter the US dollar’s dominance in international trade, Yamaoka told Reuters on Wednesday.

“Defense and national security will likely become key themes when debating CBDC,” the former BOJ executive said.

He further explained that the most impactful of the Western sanctions that have been imposed on Russia so far was the freezing of foreign reserves.

“The most effective, powerful weapon was the freezing of Russia’s foreign reserves. It meant US allies intentionally created a situation that pushes Russia into default,” he said.

Notably, Yamaoka warned against taking lightly the use of sanctions on financial infrastructure, saying that these are “emergency means” that should never be over-used.

Lastly, the former central bank executive said it was unlikely that open and decentralized cryptoassets would be a feasible way for Russia to circumvent sanctions. These types of assets are too risky to use for large transfers of funds, Yamaoka opined.

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