Russia Tries to Curb the Use of Cryptocurrencies with a Digital Ruble

• The regulatory framework of the digital ruble project is expected to be ready in January 2022, although authorities envision full use of this new payment instrument by 2030.
• Russia joins a group of countries, which includes China, the United States, and the European Union, working on the development of a CBDC digital currency.

The Russian government plans to start testing a prototype of the digital ruble in early 2022, following an agreement among the Ministry of Economic Development, the Central Bank, and the Russian state Duma.

The project is part of the Financial Market Development Strategy, published by the Russian government on September 13. One of the main objectives of the project is to stop the advance of the use of cryptocurrencies in the country and facilitate the payment system.

"Based on the results of this pilot test, a roadmap for the introduction of the digital ruble will be developed, as well as the necessary amendments to the legislation," said the Central Bank.

The debate on the advantages of the digital ruble, which is expected to be fully implemented in 2030, was open for a month until October 13.

By December this year, the prototype of the platform for using the digital ruble is expected to be ready. The development and launch of Russia’s CBDC digital currency will be executed in several stages.

The type of operations will be gradually expanded and the number of participants in the project will increase, which involves some 12 Russian financial institutions for now.

Legislation on this matter is expected to come into effect in January next year, in parallel with the development of the project, according to the head of the financial market committee of the State Duma, Anatoli Aksákov.

The introduction of the digital ruble will require the approval of special legislation, the Ministry of Economic Development said.

"At the very least, it must be said that it will be possible to pay with a digital ruble, unlike conventional digital currencies," said Alexey Minaev, deputy director of the development department of the digital economy of the Ministry of Economy.

Coexistence of Digital Money and Traditional Money

At least eight federal laws and five other codes will be reformed to create the necessary legal framework, including the tax, budget, civil, criminal, and administrative codes.

Aksákov clarified that the legislation will contemplate the same rights for holders of fiat money and digital money.

The digital ruble will become an additional means of payment, but also a store of value and a savings instrument. That is, it will have the same functions as banknotes and coins.

The legislator added that the new form of money will guarantee the “seamless” payment space and “the simplicity of convertibility of the ruble from one form to another.”

According to Minaev, there is currently a worldwide trend towards the issuance of central bank digital currencies.

On The Flipside

• Minaev noted that this initiative has very little to do with cryptocurrencies. Although the truth is that in Russia and around the world, there is a growing use of private cryptocurrencies.
• The project to issue the digital ruble was announced after the Director of the Office for International Settlements asked central banks to speed up the process of developing their CBDCs.

In response, the central banks of the most industrialized countries, including China, the United States, and the European Union, are working on the development of their respective digital currencies.

The incorporation of a digital fiat currency into the Russian economy seeks to curb the growing use of cryptocurrencies in the country. The Chinese government is doing something similar with the implementation of the digital yuan, which is already at a fairly advanced stage.

Russian regulators view cryptocurrencies as substitutes for money and seek to make the state compete with private money. Like China, Russia’s Ministry of Finance is of the opinion that cryptocurrencies encourage money laundering and hamper macroeconomic policies.

Through the digital ruble project, the government hopes to issue new financial instruments. Authorities believe they will be able to increase the availability of existing banking services and reduce transaction costs. They believe that the digital ruble will contribute to better management of financial crises and inflation.

The VTB, one of the main universal banks in Russia, explained that the project is considering the integration of clients’ banking services through a mobile application and the transfer of fiat digital money between people.

Similarly, spokespersons for another Russian bank, the PSB, praised the implementation of the digital ruble. They said that the costs of the banking service will decrease and customers will be able to store this type of money safely on the Central Bank platform.

Why You Should Care?

• The immediate forecast of the analysts is that the two forms of money will coexist from now on.
• Cryptocurrencies and CBDC digital money issuance plans in many countries suggest that competition between both payment instruments will be fierce.

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