The digital ruble: a revolution in the country’s financial system or a new method of control?

The Russian government has been developing the digital ruble for a long time. The project was first presented by the Central Bank in 2018 and is expected to enter the testing stage in 2022. Central Bank officials argue that the introduction of a new form of the ruble will make life easier for citizens and improve the country’s economy, but is this really so?

What prospects for the digital ruble? What are its benefits?

The digital ruble makes remote payments and online settlements possible. In addition, it can be used offline — if there is no Internet access. If the bank where you opened your digital ruble wallet closes down, you will be able to access this wallet through other banks and your funds will be intact. The digital ruble can become an additional means of payment for both buyers and sellers, including in remote and sparsely populated areas where access to financial infrastructure is limited.

Each digital ruble has its own unique code that allows you to find out where and for what purposes it was spent. The digital ruble will therefore be able to trace any criminal activity, in particular money laundering and the financing of terrorist organisations.

How will the emergence of the digital ruble affect the position and importance of traditional banks?

The Central Bank does not aim to completely remove cash from daily use. And even if this project is completed, it will be years before it is realised and working. Banking operations are already fairly well systematised and online, so the situation will not change much when the digital ruble comes out.

The importance of traditional banks will diminish dramatically, as all control over the digital currency will rest with one entity — the Central Bank. But traditional banks will still have savings accounts, as the digital ruble will only be used as a means of payment.

What do you think about the conflict between the Central Bank and commercial banks, represented by Sberbank, over the introduction of the digital ruble?

Sberbank estimated the size of the flow of non-cash rubles from banks to the Central Bank after the launch of the digital ruble. Within three years after the appearance of a new form of money, 2–4 trillion non-cash rubles can be transferred to this form. Since this money can no longer be used by banks, lending rates will rise.

The introduction of the digital ruble is in the interests of the Central Bank, since all control will come from one institution. It is understandable why commercial banks will be against it. Banks will have to create a wallet for digital rubles for their clients, which will increase control from the Central Bank, and banks will not receive any additional money from this project.

Unlike cryptocurrencies, the digital ruble will be a centralized system. This means that any financial transactions can be tracked. Is this a plus or rather a minus for users? Can this be considered an additional measure of control on the part of the state?

Of course, with the help of the digital ruble, it will be easier to trace illegal transactions, but I doubt that criminals will voluntarily transfer their money into digital rubles. The centralized monetary system allows for the possibility of corruption and lack of competence in resolving issues, which the decentralized system does not allow. And since the Central Bank is directly related to the government of the Russian Federation, this can be safely considered an additional measure of control on the part of the state.

It is possible that it will be more convenient for the user to use the digital ruble in some cases, but in which ones it is not yet clear. The IRS and other government agencies will most likely begin to accept only the digital ruble, which will force citizens to switch to state cryptocurrency.

How much does society need to implement a national digital currency? Will the digital ruble be in demand among Russians?

Over the past four years, the share of non-cash payments in retail, catering and paid services has increased significantly, from 39% in 2016 to 75% in the first half of 2021. More and more people are using cashless payment methods.

Cash is a thing of the past, but the national digital currency is unlikely to be the future. The future is the cryptocurrency, and countries’ attempts to introduce national digital currencies are nothing more than attempts to maintain control over their populations. In Russia, this project most likely will not be completed, because corruption is at a very high level, and the trust of citizens in the state. institutions and state. services are low.

The commentary was prepared by the analyst of the crypto platform BitexPro Artem Shuvalov.