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Ukraine’s government is banning crypto purchases with its national currency under martial law

April 22, 2022, 5:18 PM UTC

Ukraine’s Central Bank has banned the purchase of crypto as it seeks to preserve the health of its national fiat currency, Hryvnia.

The National Bank of Ukraine clarified rules around international payments under its martial law on Thursday, and set a number of restrictions around cryptocurrency transactions to slow the flow of money out of the country as Russia’s war wages on.

Since the war began, the central bank found that $1.7 billion was transferred out of Ukrainian banks in March and $900 million in early April, prompting the new restrictions.

The ban is temporary, but for now Ukrainians who want to buy cryptocurrencies can only purchase Bitcoin and digital coins using foreign currency, with total monthly purchases limited to UAH 100,000 ($3,300).

The National Ukraine Bank deems crypto purchases as well as other international peer-to-peer transactions, like electronic wallet deposits and virtual asset purchases, “quasi-cash transactions.” 

While the government is worried about keeping the financial line open for global donations to millions of Ukrainian citizens who have fled the country in recent weeks, it noted that the move to restrict crypto transactions was necessary. 

“The [National Bank of Ukraine] estimates that said changes will improve conditions on the foreign exchange market, which is a prerequisite for further easing the restrictions and relieving pressure on Ukraine’s international reserves,” it said in a statement.

Changing tack 

The temporary ban of cryptocurrency in Ukraine differs significantly from the country’s initial warm embrace.

Before Russia invaded Ukraine, the country traded more cryptocurrency than fiat currency. The Ukrainian Parliament passed a bill on Feb. 18 of this year to legalize cryptocurrency, and put its regulation under the oversight of the National Commission on Securities and Stock Market.

“This will legalize crypto exchangers and cryptocurrencies, and Ukrainians could protect their assets from possible abuse or fraud,” Ukraine Deputy Prime Minister and Minister of Digital Transformation Mykhailo Federov announced on Twitter at the time.  

Since the invasion began, Ukraine has used cryptocurrencies creatively to raise money for the war effort. The country tweeted that it was “accepting cryptocurrency donations” on Feb. 26, providing links to two crypto wallets to receive Bitcoin, Ether and Tether. The wallets proved a huge success, raising $63.8 million through more than 120,000 crypto asset donations, according to analytics firm Elliptic.

But as the war continues, the National Bank of Ukraine fears that the large amounts of money exiting the country toward international payment systems is putting pressure on its currency. Seeking to avoid a situation seen with Russia’s ruble, Ukraine is hoping the new restrictions will keep its currency in better health.

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