CENTRAL BANK DIGITAL CURRENCY AND CRYPTOCURRENCY AS ALTERNATIVE SOURCES OF FINANCING UKRAINE’S DEFENCE AMID ECONOMIC TURBULENCE

Abstract

This study examines alternative sources of financing Ukraine’s defence in the context of economic turbulence. The introduction highlights that the digitalization of defence financing during large-scale armed aggression is a complex and challenging task, constituting a pressing applied research problem. One potential solution involves the use of alternative financial instruments, specifically central bank digital currencies and cryptocurrencies. A critical review of recent studies and publications reveals that Ukraine faces a fundamental contradiction that constrains the use of digital assets in defence financing. On the one hand, the National Bank of Ukraine’s digital currency – the e-hryvnia – remains at the pilot stage, restricting its practical application. On the other hand, cryptocurrencies, despite their widespread adoption, are not legally recognized in Ukraine as a means of payment for defence-related goods and services. The methodological framework relies on strategic analytical approaches. Gap analysis is used to identify discrepancies between the current state of the problem and its desired level, while comparative analysis is used to evaluate the properties of the two currencies. Results indicate that the use of the e-hryvnia in defence financing is hindered by technological and economic gaps, which are closely interrelated and critically significant. These gaps also extend to social, institutional, and infrastructural dimensions. In the case of cryptocurrencies, gap analysis reveals an even greater number of critical discrepancies, including institutional barriers that limit their use for international donor contributions. Comparative analysis shows that CBDCs, and the e-hryvnia in particular, exhibit lower financial attractiveness compared to cryptocurrency. Moreover, donors are likely to demonstrate higher levels of trust in cryptocurrencies than in the e-hryvnia, even after its potential introduction. The absence of transaction fees in cryptocurrency transfers, unlike in the case of the e-hryvnia, further strengthens their attractiveness for donor contributions. Finally, the article proposes strategic measures to overcome the identified gaps. These recommendations aim to accelerate the expansion of alternative sources of defence financing. It concludes that adequate defence funding – including from non-fiat sources – is essential for ensuring Ukraine’s economic stability and the welfare of its citizens.