On Wednesday, the Russian Central Bank announced that the country would start a pilot project with a ‘digital’ rouble from April 2023. It added that the project would run ahead of its initial schedule and include data from real customers and real transactions.
As a result of Western sanctions isolating Russia from major swaths of the global banking system, Moscow is seeking new means to make critical payments both at home and abroad. Moscow announced in April that the “digital” rouble would be ready for international payments by next year (Suggested Reading: SWIFT is Collaborating with Capgemini to Test CBDC Cross-Border Payments).
At that time, Elvira Nabiullina, the Russian Central Bank governor, announced that the bank aims to make real-world digital rouble transactions possible by next year, adding that it could also be used in some overseas settlements.
“The digital rouble is among critical projects. We have rather quickly developed a prototype; now, we are holding tests with banks and gradually moving toward pilot transactions, said Nabiullina in the Russian lower House of Parliament.
Governments Worldwide are Working on Digital Currency
Like many other governments worldwide, Russia has been developing digital money in recent times to revamp its financial system, speed up payments, and prevent cryptocurrencies such as Bitcoin from gaining traction. Read More
Some central bank professionals believe that new technology will allow countries to engage more directly with one another, reducing their reliance on Western-dominated payment systems like the SWIFT system.
China is the most advanced among major countries, having conducted mass testing of a digital yuan at the Beijing Winter Olympics this year. The Bahamas was among the first countries to establish a national digital currency in 2020.
Circumventing Western Payment Systems
Nabiullina also stated that Russia wants to expand the number of nations that accept the central bank’s MIR banking cards, an alternative to Visa Inc and MasterCard Inc, both of which have ceased operations in Russia along with other Western enterprises.
Since Russian banks were denied excess to the global financial system in response to Moscow’s “special military operation” in Ukraine, MIR and China’s UnionPay are the few choices available for Russians to make international payments.
Despite sanctions that prevent Russia from accessing the global financial system, a digital ruble would allow the country to carry on making domestic and international payments. However,
the willingness of countries to take the digital ruble without first converting it into dollars will determine whether Russia can utilize it for foreign payments.
There is concern that Russia would use the digital ruble to steal cryptos and compensate for the money lost due to sanctions by employing cyber techniques such as ransomware, as has already been reported in North Korea.
The major concern for Western countries is that Russia may succeed in introducing its digital currency. If the digital ruble rises in value, Western sanctions will have minimal impact on Moscow, and the West will have one fewer lever to sway the Kremlin’s conduct.
Russia May Embrace Cryptocurrencies
There are also indicators that Russia is becoming more open to considering cryptocurrency legalization.
Denis Manturov, Russia’s Industry and Trade Minister, indicated on May 18 that crypto would be legalized as a payment method “in some format or another” sooner or later.
It’s a significant move for Russia, which has previously banned cryptocurrencies out of concern that they’d be used for terrorism or money laundering.
Cryptocurrency, by definition an alternate payment mechanism, might assist Russia in bypassing all of the traditional market barriers erected by Western friends. Using cryptocurrency to make domestic and international payments could help Russia’s internal situation by protecting citizens from direct Western sanctions.
According to recent Russian official statistics that were not independently verified, Russians own more than 200 billion EUR in cryptocurrency.