Russia’s Central Bank Introduces Potential For The Digital Ruble
The Central Bank of Russia (CBR) has published a consultation paper to introduce a “digital ruble” as an alternative to cryptocurrencies, which are banned in the country. This follows the lead from China, where the Digital Yuan has been trialing for public use in four cities with a national roll-out expected next year.
There has been confusion about the differences between a digital currency and a cryptocurrency. Both Russia and China have understood that the rapid growth of fintech solutions — both by startups and existing players in the banking sector — need a form of currency that is more user friendly to electronic transfers than simply holding numbers in an electronic ledger. However, neither countries Central Banks wish to create blockchains structure to create and trade the digital coins.
Two weeks ago, the Central Bank of Russia released a paper entitled “A Digital Ruble” concerning the prospects of introducing a digital currency. Alexey Zabotkin, the Central Banks Deputy Governor stated “The existence of the digital ruble will curb the risks of using other, less reliable, payment solutions in the digital space. The creation of an extra payment infrastructure for the digital ruble will additionally support the reliability and interrupted operation of the country’s payment system.”
When mentioning “other, less reliable” payment options, Zabotkin was referring to cryptocurrencies, which are currently banned in Russia. The Russian Central Bank has been strongly against the idea of accepting cryptocurrrencies as a legitimate means of payment.
The Central Bank said it aims to augment the exchange space with a digital form of the ruble in addition to cash and cashless money, while the digital form could combine the best features of the other two, supporting online transactions like cashless money and being used offline like normal cash, and be controlled by the Central Bank’s own mechanisms to prevent speculative fluctuations.
Just like banknotes that have individual numbers, digital ruble ‘units’ will have a unique identifier. In the same manner as we use cash, it will be possible to use digital rubles offline, i.e. without an access to the internet. On the other hand, its digital form allows using a digital ruble for online payments, just like cashless means of payment.
All economic agents, including individuals, businesses, financial markets participants and the government, will have access to a digital ruble. Just like cash and non-cash rubles, a digital ruble will perform all three functions of money: it will act as a means of payment, a measure of value and a store of value. All three forms of the Russian ruble will be absolutely equal: as one cash ruble equals one non-cash ruble, one digital ruble will always equal each one of them.
In the same manner as cash and non-cash rubles, it will be possible to use digital rubles to pay for goods and services, make payments to organisations and the state, make funds transfers, pay for transactions with financial instruments and digital financial assets. Funds in digital ruble accounts will be replenished from a bank account or a bank card as well as with cash. All forms of rubles (cash, non-cash, digital) will be transferable into each other.
No guidelines have been given for any launch of the Digital Ruble, with the Russian Central Bank saying that “Due to the fact that introduction of a digital ruble will become a major event for the economy and society, the Bank of Russia believes that it is crucial to discuss the key aspects, benefits, potential risks, milestones and timeframes for the implementation of the digital ruble project with financial market participants, experts and the general public.” and adding it has not yet made a decision on whether to introduce a digital ruble. The consultation paper ‘A Digital Ruble’ (available in Russian and English) outlines potential ways to implement this decision and the corresponding functional requirements.
Update: October 27 2020
Possible Digital Ruble Pilot Scheme At End 2021
The prospects for the introduction of the digital ruble are realistic, with a pilot launch possible at the end of 2021, according to Evira Nabiullina, the Head of the Bank of Russia This announcement came following a meeting of the Banking Regulator’s Board of Directors.
“After the discussion of the consultation report takes place, we will collect feedback by the end of the year. Then we will process them. If a decision is made on the feasibility of launching the digital ruble, we will prepare a full-fledged concept. Then, in our opinion, there should be a pilot stage with a limited number users in order to work out everything, so that we understand how it works. We think that this kind of pilot project is possible somewhere by the end of next year.”
- Digital Currencies To Be Permitted In Russia From 1st January 2021
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