Russia to Allow Use of Digital Ruble from August
Russian President Vladimir Putin has signed the country’s digital ruble bill into law, giving authority to the Bank of Russia as the central bank digital currency (CBDC) platform operator. The bill will allow the country’s central bank to commence tests of the CBDC starting August 1.
How Would Russia’s CBDC Work?
The digital ruble infrastructure will be managed and maintained by the Bank of Russia. The central bank will control all stored assets and act as the primary operator of the infrastructure rather than commercial banks.
The new law specifies that the digital ruble is intended for payments and money transfers only, not investments. It will serve as a new form of payment alongside cash and non-cash rubles.
In a statement, Bank of Russia governor Elvira Nabiullina mentioned that Russian citizens don’t need to use the CBDC. Instead, individuals will be free to choose whether or not to adopt the digital ruble.
“No one is going to force anyone into the digital ruble […] But we really hope that it will be more convenient and cheaper for both people and businesses, and they will start using it. This is a new opportunity.”
Western Sanctions Further Drive Russia Toward A CBDC
Russia has been discussing the concept of a digital ruble for several years. In 2020, the country released an analytical report based on feedback from banks and financial market participants. It then conducted pilot tests with multiple banks in February 2022.
However, the concept of a digital ruble gained significant momentum following the imposition of sanctions by the United States and its allies. The outbreak of the war in Ukraine further highlighted the importance of implementing the digital ruble to address the impact of Western sanctions, leading to an urgent push to launch the central bank’s digital currency.
Both houses of Russia’s parliament swiftly passed the legislation for the digital ruble bill. Russia’s State Duma — the country’s lower house of parliament — passed the digital ruble bill on July 11. The Federation Council — the upper house — approved the bill on July 19.
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Can Russia Use its CBDC to Dodge Sanctions?
Russia could use a digital ruble to facilitate domestic and international payments, overcoming the current sanctions restricting access to the international banking system. However, the success of using the digital ruble for international transactions will depend on the willingness of other countries to accept it without requiring conversion into dollars.
“There is concern that Russia may use the digital ruble to steal digital currencies and make up for the money lost on sanctions with hacking techniques like ransomware,” Euronews reported last year. It claimed that Western countries are apprehensive that the launch of the digital ruble could weaken the effectiveness of sanctions.
Likewise, a March report from the Official Monetary and Financial Institutions Forum claimed that CBDC networks could “defang” sanctions. The forum highlighted the development of cross-border CBDC networks in Asia, such as the mCBDC Bridge involving Thailand, Hong Kong, China, and the United Arab Emirates, as well as Russia’s digital ruble.
The OMFIF suggested that these digital currencies could provide alternatives to Western-controlled payment mechanisms and help countries bypass sanctions. It also mentioned the potential role of cryptocurrencies, stablecoins, and the digital yuan in forming a payments network that cannot be curtailed by revoking access to Swift or the Fed’s clearing system.
The forum predicted that if the dollar payments network continues to be used as a foreign policy tool, countries may need to develop alternative payment systems free from Western political influence. “As serious challengers emerge to Swift’s platform and the Fed’s clearing networks, the threat of prohibiting access will lose its sting,” the OMFIF said.
Would Russian allies like China and Iran use a digital ruble in international settlements? Let us know in the comments below.