The Bank of Russia has launched a discussion on creating a new form of domestic currency – the digital ruble. The plan will combine “all the advantages of cash and non-cash currency” with the ability to pay remotely and without connecting to the network. But to implement offline payments with the digital ruble, you will have to create a special infrastructure. The emergence of a new currency may significantly affect the banking system, which is not needed for its circulation.
The Central Bank (CB), on October 13, announced the start of work on the creation of a new form of the Russian currency – the digital ruble. The regulator has prepared an advisory report. The document explains that so far, this is “the first step designed to initiate a comprehensive and broad discussion of this issue.” The Central Bank plans to develop the concept in stages: first, assess the possibilities and prospects of the digital ruble, then implement a pilot project with a limited number of users and develop a platform. After that, a decision can be made to launch the digital ruble on the feasibility and further steps.
Until recently, the Central Bank doubted the very idea of a crypto-ruble. In May last year, at a hearing in the State Administration, the First Deputy Chairman of the Central Bank Olga Skorobogatova noted that “the issue of money on the blockchain does not have any additional significant advantages in terms of savings.” A year ago, the chairman of the Bank of Russia Elvira Nabiullina, at a meeting with participants in the FINOdays youth program, noted that the idea of creating a crypto-ruble “has not died yet, but has not come close to implementation”: “We see risks, but we do not see any great advantages yet.”
The attitude has changed, apparently, both in connection with the pandemic and with the activity of other countries to create their own cryptocurrencies.
According to the Central Bank, in 2019, the share of Russia’s adult population, for whom remote access to bank accounts for making transfers has become a common practice, has grown to 55%. In 2020, “it is natural to believe that … the share of such transfers has increased.” The share of non-cash payments for goods and services in the total volume of retail trade, catering, and paid services to the population increased to 70%.
According to a 46 central bank survey conducted in February by Central Banking (UK), 65% of respondents said they were “actively researching digital currencies.” Several countries (China, Sweden, South Korea) are already implementing pilot projects; some, including the United States, Great Britain, Switzerland, and Canada, are conducting active research.
According to the regulator’s report, “the digital ruble is the same Russian ruble that will be issued by the Bank of Russia in digital form in addition to the existing forms of money.” It should combine the advantages of cash and a non-cash ruble: “On the one hand, the digital ruble is similar to banknotes, since it has a unique digital code (just like a banknote has a series and number) and is issued by the Central Bank, which is why the Central Bank’s digital money is sometimes called digital cash.”
Unlike real cash, all transactions with the digital ruble can be tracked: “Data on transactions will be available to the Central Bank and financial intermediaries performing AML / CFT / FROMU functions in the public interest.”
The Central Bank believes that the digital ruble’s main advantage will be the ability to pay them online and offline. And if there are no problems with the first option, then payment in digital currency in the absence of an Internet connection (as declared in the document) raises questions. The Bank of Russia recognizes the need to develop “special technologies that will make it possible to use digital ruble offline.”
There is one more subtle point in introducing a new type of currency: banks are not actually needed for its circulation. “The digital ruble will be available to all economic entities – citizens, businesses, financial market participants, and the state for making payments and settlements. It will be stored on individual electronic wallets opened directly in the payment system of the Bank of Russia and which are its obligations, ”the report says.
It also argues that the proliferation of digital payments will lower transaction costs for the consumer, that is, lower fees and commissions for banks.
This, according to the regulator, will lead to “increased competition among credit institutions and the struggle for the client by offering more convenient services to citizens and businesses.” The Bank of Russia recognizes the potential threat of the digital ruble to the existing banking system and promises to assess the possible effects on the policy of “maintaining price and financial stability.”