Ukraine's allies have sent heavy weapons and protective gear to help the country's army counter Russian forces. However, without money to supply the army, the war could have collapsed quickly. The call for cryptocurrency donations has helped the government stand firm. In addition, according to the Washington Post, Kiev also relies on an outdated tool that countries often use in times of trouble: War bonds.
What are war bonds?
War bonds are debt instruments issued by governments to raise funding for production and military activities, often accompanied by a propaganda campaign to promote the purchase of bonds as a civil duty.
War bonds tend to pay less interest than conventional bonds, and the repayment can last for decades. Ukrainian war bonds have a structure similar to the debts that the country regularly sold during peacetime and will mature after three months to a year.
What difference does war bonds make?
War bonds have helped maintain government operations after Russia launched a military campaign in February, leaving the Ukrainian economy free. Unable to borrow at affordable interest rates, the Treasury has renamed conventional domestic bonds "military bonds" to sell them for 1,000 hryvnia ($34).
One-year bonds have an interest rate of 11%. For buyers, including local banks and more than 70,000 citizens and businesses, the investment is a leap in confidence. Inflation is occurring at an annual rate of 16%, but the government still sold the equivalent of 3.1 billion USD worth of bonds in 38 auctions from March to May. Kiev is also considering selling so-called peace bonds to raise foreign currency as it mobilizes international donors to provide up to $50 billion in emergency funding.
How have war bonds been used?
History has many examples of governments spending heavily on military buildup, then selling war bonds to reduce cash flow and keep inflation under control. The UK issued national war bonds during World War I, with interest rates of 5%, and the issuance was supported by a huge advertising campaign to inspire patriotism. When they were bought back nearly a century later, they were still owned by 120,000 investors.
The US sold free votes in World War I and defense votes in World War II. Defense bonds were converted into war bonds after Japan bombed Pearlham, sending the US into the conflict and buying back 85 million Americans, helping the government raise about $185 billion by the end of the war.
Have other countries sold war bonds?
Governments have used many patriotic calls to sell unusual debt instruments during difficult times. Italy sold bonds backed by national lottery revenue in 2001 when it was the country with the highest level of public debt in the European Union.
In 2012, Greece tried to sell bonds to migrants to attract money from citizens living abroad during the countrys severe debt crisis.
The EU has considered selling what is called corona phieu - a controversial risk sharing tool to help member countries combat the economic impact of the COVID-19 pandemic. Despite the failure of the idea, the 27 EU members have embarked on their largest loan ever in a joint loan, called the NextGenerationEU bond program.
How else does Ukraine raise funds?
In addition to selling domestic war bonds, Ukraine has raised more than $60 million in foreign cash and cryptocurrency through social media campaigns that have attracted sympathy around the world.
By donating Bitcoin, Ether and Tether along with regular money and relying on device providers to accept cryptocurrency payments, Kiev has been able to quickly find a source of bulletproof shirts, helmets and medicine without relying on the local banking system - which is chaotic and vulnerable to cyber attacks.
A dedicated community mobilization platform allows donors to see how their money has been used to make the process more transparent. The websites are set up to sell NFTs (nonfungible token - interim version of accounts cannot replace, is a unique cryptocurrency) with the proceeds going to the government's cryptocurrency wallet.
