How Current Wars Affect Fiat Currency and Why Crypto is the Smarter Choice

Affected Currencies

1. The Russian ruble took a huge hit, dropping almost 30% right after the first attacks on Ukraine.
2. The Euro also fell, though less drastically, partly because of Europe’s dependence on Russian energy and its proximity to the conflict.
3. The Ukrainian hryvnia wasn’t spared either. Within just three days of the invasion, it had dropped from around 29.24 UAH to over 40 UAH against the US dollar.
4. In the Middle East, the Israel-Hamas conflict and Hezbollah’s involvement have similarly influenced various currencies.
5. The Lebanese pound has devalued by over 90% since 2019. So much that it’s not strange to see piles of paper bills discarded in the streets.

The US Dollar’s Safe Haven Status Under Threat

The U.S. dollar was the go-to ‘safe haven’ for years, but then global crises struck. Recent events have highlighted its susceptibility to economic strain. Conflicts worldwide have contributed to inflationary pressures and rising debt, weakening confidence in the dollar’s stability.
Within six months of the Russia-Ukraine conflict, U.S. inflation surged to a record 9.1%.

How Wars Affect Fiat Currencies?

Geopolitical conflicts place a tremendous strain on national economies, and fiat currencies are no exception.

1. Sanctions and Economic Blockades:

Countries facing sanctions experience severe currency depreciation as access to global markets is restricted.

This isolation limits trade and cuts off foreign currency inflows, which leads to a weakened currency.

2. Inflation and Resource Scarcity:

Wars disrupt supply chains, creating shortages and inflating prices. Europe’s reliance on Russian energy exacerbated inflation across the EU when sanctions blocked Russian oil and gas exports, leaving the euro 12% weaker against the dollar by year-end.

3. Investor Confidence and Capital Flight:

When Russia invaded Ukraine, foreign investors withdrew around $150 billion from Russian assets in early 2022.

Similarly, in the recent Israel-Hamas conflict, Tel Aviv’s stock index dropped nearly 8% in the first week, and the shekel depreciated by over 7% against the dollar as investors hedged against the volatility.

4. Physical and Infrastructure Destruction:

Losing infrastructure hampers productivity and weakens currencies. Ukraine’s infrastructure was hit hard, with damage surpassing $130 billion by the end of 2022, as reported by the World Bank.

In Gaza, the Israel-Hamas conflict has caused $1.5 billion in infrastructure damage. These losses hurt GDP, and employment, and eventually lead to currency devaluation.

Why Crypto is the Smarter Choice?

Cryptocurrencies demonstrate a resilience to geopolitical conflicts that fiat currencies lack. As decentralized and globally accessible assets, they are largely insulated from the direct effects of war.

• For instance, during the Ukraine conflict in early 2022, Bitcoin showed remarkable stability while fiat currencies, such as the ruble and euro, experienced a sharp decline.
• At that time, Bitcoin rose approximately 25% from February to March, reaching $47,000 by the end of March 2022. While traditional currencies faltered.

In past global crises, such as the COVID-19 pandemic, Bitcoin and other cryptocurrencies saw significant gains.

• Bitcoin surged over 300% in 2020, reaching a high of $29,000 by the end of the year as more investors sought alternatives to fiat currencies.

Parting shot

Satoshi Nakamoto’s vision of a decentralized global currency is coming true. Cryptocurrencies keep proving they’re more reliable than fiat, especially during times of tension.

They’re a better hedge—safer, censorship-resistant, and almost crisis-resistant.