Through war bonds and cryptocurrencies … How is Ukraine financing its defense?

The centerpiece of recent fundraising efforts for Ukraine was a table on display at a bakery in north London. There, Isaac Camlish, Nathan Cohen and Isaac Pintata, ages 23 to 25, gathered around their laptops earlier this week and helped launch the first sale of digital collections of its kind by a national government. .

Within 24 hours, using technology developed by the troika, Kiev had sold more than 1,200 immovable land and raised nearly $ 600,000 to help fund its defense against Russia.

The auction, which used blockchain technology as a means of financing during the war, highlights how the Ukrainian government is using new and traditional tools to generate the money needed to survive the crisis. The data show that Ukraine has bought nearly $ 1 billion worth of war bonds sold to people and institutions in Ukraine, as the population shows a willingness to lend to the government even if it is not guaranteed to repay all their money.

Meanwhile, the administration of Ukrainian President Volodymyr Zelensky has encouraged potential donors around the world to convert the cryptocurrency directly, an effort that has raised more than $ 56 million, according to analyst group Chain Alice. Wednesday’s NFT sale prompted collectors from Los Angeles to rush to Barcelona to take part in what they saw as a pivotal moment for both Ukraine and the crypto world.

“The Ukraine war is devastating and will be in the history books … This use of cryptographic technology is also historic in itself,” said Ben Jacobs, co-founder of digital asset investment firm Senius Capital.

Jacobs, who is based in Venice Beach, California, bought two NFTs and spent a total of $ 1,100 including small transaction fees. About $ 1,000 of the Ethereum cryptocurrency – commonly used for NFT sales – went to the Ukrainian government.

rush to raise funds

In Europe and the United States, large numbers of citizens demonstrated their solidarity with Ukraine by hanging blue and yellow flags from buildings, organizing local fundraisers, and updating their avatars on social media.

But the Ukrainian president’s team needs more than words and gestures. Kiev needs a lot of money to keep the Ukrainian government afloat and to equip its army. He estimated that the war could cost the country about $ 565 billion. Ukraine’s economic output in 2020 amounted to about $ 155 billion.

“Our fiscal gap is much bigger than we expected when we started this year,” said Yuri Potsa, Ukraine’s commissioner for public debt management, referring to the gap between government revenues and expenditures. To help overcome this divide, the government launched an unprecedented effort in the five weeks following the Russian attack to raise money for its cause on a global scale.

“These people are creative,” says Victor Szabo, a fund manager specializing in emerging market debt at UK-based investment firm Updren.

At the same time, Kiev has turned into proven and real channels for fundraising. Ukraine has received about $ 4 billion in emergency funding from multilateral organizations, including the International Monetary Fund and the World Bank, and an additional $ 2 billion is being negotiated. Classic war bonds, issued by governments during conflict, are used to gain the support of citizens. They are useful in combating inflation, as they generate money from circulation at a time when there is often a shortage of products.

Ukraine raised about $ 1 billion through five domestic currency bond sales in March. Botsa said there are huge demands from both institutions and individuals. Proceeds go to the government reservoir and are then used to cover expenses such as pension payments or emergency services. “There are a lot of people who buy $ 10,000, $ 5,000 of this tool,” he added.

Buying these bonds in the current climate requires a step of confidence. And the one-year bonds issued last March had a yield of 11 percent, indicating a high level of risk. And if the Zelensky government collapses or is exiled, or if a protracted war destroys Ukraine’s economy, payment will not be secure.

Reduce the credit rating of Ukraine

Shortly after the Russian attack on Ukraine, Standard & Poor’s Global downgraded Ukraine’s credit rating. He said while believing the international community would help Kiev meet its financial needs over the next 12 months, there was “potential for disruption to governance, which would jeopardize trade debt service”.

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Botsa sees Ukrainian government working “24/7” with its bankers to develop new dollar-denominated bonds that could be sold to foreign investors, many of whom are eager to support Kiev but suffer from capital constraints preventing them from collecting returns to Ukraine. currency, in addition to other logistical issues.

“We intend to provide a tool where anyone who wants to support Ukraine in the United States and who has an account with local financial institutions can easily support us,” he added. His team is exploring options within the European Union.

Despite support for Ukraine, professional investors – who are tasked with protecting their clients’ money – may be worried about lending to the Ukrainian government at the moment, even if they can find a way to offer bonds abroad.

“We can not invest in an asset where we see a high probability of not returning that money,” says Szabo, though he believes the market could become attractive again once the war is over.

Work in the coder corner

Financing options are not attractive because Ukraine is wary of dramatically increasing its debt burden. “We do not want, as the war approaches the reconstruction phase, to end up spending more on debt service than on infrastructure reconstruction,” says Botsa.

And that could include cryptocurrency donations and “NFT” sales. For weeks, Ukraine encouraged users to transfer bitcoin and other cryptocurrencies to their official social media accounts. This effort has given the government access to a large group of small donors, who do not have to worry about complex financial arrangements or foreign exchange.

Since March 28, Kiev has raised about $ 56 million in cryptocurrency, with an average donation of about $ 30. Alex Bornyakov, Ukraine’s deputy minister for digital transformation, says the money was used to buy bulletproof vests, helmets, remote controls and medicines.

The NFT sale of the Ukrainian flag, an initiative supported by a member of the Russian activist group Pussy Riot, raised more than $ 6.7 million. The effort entered a new phase this week with the official NFT auction. Supporters around the world have purchased digital images made by local artists that combine color photographs with war artifacts, such as tweets.

Earlier, Kevin Lista Navarro, a 26-year-old financial advisor in Barcelona, ​​donated to support refugees from Ukraine. However, he saw in the NFT auction a unique opportunity and bought two. “Thanks to this technology, you now have the opportunity to contribute to the cause and receive in return a memorial work of art … who knows what may be worthwhile in the future,” he said.

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